The Thinking of the Average Trader

By Rahul

Who is an  average trader ?

The majority of people fall into this ‘average trader’ category.  Basically, they seem to think that trading is easy and for whatever reason they buy a stock, the stock’s immediately going to go in their favor.  Heaven forbid they actually are successful, because now that reinforces that behavior going forward and it really sets up for a major disaster.  If you’re an average trader, you have no trading plan or view of trading.  It’s just that simple.  Most people treat this as a hobby and they have no trading plan to speak of.  They have absolutely no money management rules.  If you’re sitting here reading this and you have no money management rules whatsoever, don’t worry.  You’re part of the average trader that is out there.

Are you prone to emotional swings?  So, price goes up, you’re immediately happy; if price goes down, you’re trying to jump out of a window.  Those types of emotional swings are typical with average traders.  Are you nervous most of the time when you’re in a trade?  Can you sleep at night?  Average traders don’t have confidence in their system or their plan so they’re usually pretty nervous whenever they’re in a trade.  You quickly give back to the market your recent gains.

Let me know if this sounds familiar:  You make Rs 5000 on a winning trade.  You feel great.  And then on the very next trade you get cocky and, bang, you end up losing Rs 5000 or more and you give back all of those gains that you just made to the market.  This is very common.  It doesn’t mean you’re a failure.  It just means that you’re average.

You try to recoup losses immediately, also known as revenge trading.  Oh, I used to love revenge trading.  Basically, here’s how this goes.  You end up taking a huge loss.  We’ll just pick a number.  Say you lose Rs 1,0000 on a trade.  Now, you’re on a mission.  You immediately go out looking for a trade that you can make so that you can make that Rs1,0000 back.  You end up chasing a bad entry or for whatever reason you end up pushing the pace and get into a wrong stock and you end up losing even more.  Any of these sound familiar so far?  I’m not done yet.

You’re glued to your computer all day long watching every price movement like a hawk.  This goes hand in hand with your emotional swings.  It goes up, you’re happy; it goes down you’re ready to beat your head on the keyboard.  If you’re stuck all day watching prices and you’re constantly on an emotional roller coaster?  Don’t worry.  You’re not alone.

How about this one?  Do you ever review your trade results and follow up on your winners and your losers?  I can guarantee you that professionals definitely follow up on their trades.  And if you’re not following up on your winners – do you think this might be a good idea?  You have a winning trade and you actually look back at it and say “Hmm, what did I do right in this trade?”  How about your losing trades?  How about looking at your mistakes and determining where you’re going wrong over and over again?  Do you think that’s something that might help you improve your trading?  Most people don’t do this and they continue to lose. This is why they’re average traders.

Here’s a really easy one.  Are you losing money in the stock market?  If you are, you’re like the majority of people, which puts you in the average trader category.  I remember reading a quote that if you want to be successful in the markets the easiest way to do that is to “not be average”.

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