The following graphic describes two types of traders.  The first (the circle on the left) describes what I believe to be the characteristics of all beginning traders, most of which end up quitting.  There is a progression here from bad to worst.  However, if the beginning trader can break through this cycle somewhere around undisciplined fear (#3) and paralysis of analysis (#4), the chances of his success improves exponentially.

THE LOSER’S CYCLE OF DESPERATION

Simply put, a trader enters the stock market with little if any knowledge about what to expect.  How can he?  No experience = no knowledge.  Not only that, but his expectation of untold riches distorts his perception of reality.  Once in the market he seeks the holy grail that will make him rich.  When he doesn’t find it he continues his search as fear begins to shackle his feet.  The fear leads to paralysis of analysis or the thinking that the more indicators and patterns and candlesticks etc. that he uses the more likely he will win.  Wrong!  (more…)