Biggest Reasons Why Traders Fail

There are some characteristics that I see in people from time to time that are almost always “deal breakers” in terms of their ability to become successful traders.  As long as they posses these traits, in my opinion they will never be successful at trading no matter how long they try.

Assuming Expertise In Some Field Will Translate To Trading

This is the classic “doctor at the poker table” scenario.  Poker pros love it when a doctor sits down with them at the table, because doctors as a percentage are notoriously bad poker players.

Despite being able to complete tremendous amounts of study, survive intense on the job training, and at times having the power to snatch life back from the brink of death, none of those skills transfer to the poker table.

I don’t care how great you are in sales, chess, astrophysics, yoga, firefighting, electronics, engineering, bull riding, construction, or cinematography, none of those things will help you when you decide to learn to trade.

Those that come in wearing their extraneous successes as a badge of honor, sure it will give then a leg up in the markets, will almost always end up like the poker playing doctor….busted, broke, and bitter.

You don’t validate your findings

You’re probably wondering:

“What does validate means?”

When you validate a strategy, it means you’ve tested it and know that it makes money in the long-run. (This can be done via backtesting, forward testing, etc.)

And here’s the thing:

Most traders are not willing to validate their findings. You don’t want to do the work. You’re not willing to spend the time to figure out whether something works, or not.

Instead, you want to “copy” the strategy of other traders and hope things turn out fine.

Unfortunately, that’s not how it works.

Because if you don’t validate your findings, you won’t have the conviction to trade it when the drawdown comes (I can guarantee it).

But if you do the work, validate your findings, and know you have a trading strategy that works — it’s a gamechanger for you.

You minimize the fear of losing because you know your trading strategy has an edge in the markets.

You minimize the fear of the unknown because you know what’s your maximum drawdown, average winning rate, losing rate, risk to reward, etc.

Having A ‘Know It All” Attitude.

We all know this person.  They know everything.  I mean EVERYTHING.

Who played keyboards on The White Album. The mean temperature on Pluto during winter. How the President can fix the economy.  Who built Stonehenge.

These types will find out how much they don’t know, and quickly, once they get in the markets. For them trading will be their worst nightmare, one they probably won’t survive.

It will be like they are in a street fight and the market is their opponent, hell-bent on teaching then a lesson they won’t soon forget.  Only it won’t be the type of fight where a few punches are thrown until somebody gets knocked down, and then the victor helps the defeated up, they shake hands and have a drink together at the local watering hole.

No, it will be the type of fight where when they get knocked down the market will start kicking them on the ground, in the head, with steel toed boots.  Then the market will go look for a pipe from a nearby construction site to start beating them with.  And if they haven’t crawled away in a bloody mess by then, the market will take a friggin’ cinder block and use it to try and crush their skull.

Not Knowing When You’ve Have Had Enough

In middle school I watched a guy taunt a bully all day long, and then run away when the bully came after him.  He kept doing this until the bully finally caught him, and I thought the guy would get what was coming to him.  But surprisingly, the guy begged and begged the bully for clemency, and perhaps feeling a momentary flash of compassion, the bully let him go.

And as soon as he did, they guy started taunting the bully again. Suffice to say, when the bully caught him the next time, he kicked his ass.

The guy didn’t know when to stop.  When he had pushed it enough.  He’s the same type that takes one to many drinks and crashes his car.  Throws one to many rolls and craps out. Lips off to the policeman one to many times and ends up in jail.

This type will always keep taking trades NOT because the setups are valid and warrant it, but because they never know when to say “that’s enough.”

He will be the guy that gets up for the day, but has to take “one more trade,” and gives it all back.  Being up 50K won’t be enough, because he could be up 100K, so he will push his positions and lose it all.

Not Understanding The Concept Of Risk/Reward

I knew a guy in college.  His standard move was, when drunk, he would climb to the top of the apartment complex he lived in off campus, and jump down into the pool in the center courtyard.  Everyone that was partying in the complex would be cheering as he stood atop the roof, egging him on for the big feat.  He loved this, as it gave him the distinction of being labeled a “party animal,” which was his “reward.”

Then one night he missed.  Came up a wee bit short. Smashed his foot into the edge of the pool as he came down.  Broke his foot and shattered his tibia and fibula.  That was his risk.

He still walks with a limp to this day.  He didn’t really understand the concept of risk/reward, but hey, all his drunk college buddies did think he was cool.

Those with this character flaw are made mince meat of in the markets.  They will take on three, four, five units of risk for one of reward.  When you practice this inverse risk/reward relationship you can be right on 80% of your trades and still blow your account out.

Not Adapting to the Market Conditions

Assuming that one proven trading strategy is going to be enough to produce endless winning trades is another reason why Forex traders lose money. Markets are not static. If they were, trading them would have been impossible. Because the markets are ever-changing, a trader has to develop an ability to track down these changes and adapt to any situation that may occur.

The good news is that these market changes present not only new risks, but also new trading opportunities. A skilful trader values changes, instead of fearing them. Among other things, a trader needs to familiarise themselves with tracking average volatility following financial news releases, and being able to distinguish a trending market from a ranging market.

Market volatility can have a major impact on trading performance. Traders should know that market volatility can spread across hours, days, months, and even years. Many trading strategies can be considered volatility dependent, with many producing less effective results in periods of unpredictability. So a trader must always make sure that the strategy they use is consistent with the volatility that exists in the present market conditions.

Financial news releases are also important to keep track of, even if a selected strategy is not based on fundamentals. Monetary policy decisions, such as a change in interest rates, or even surprising economic data concerning unemployment or consumer confidence can shift market sentiment within the trading community.

As the market reacts to these events, there’s an inevitable impact on supply and demand for respective currencies. Lastly, the inability to distinguish trending markets from ranging markets, often results in traders applying the wrong trading tools at the wrong time.

In Conclusion

If you possess one of these traits and are thinking of learning to trade, it’s best to seriously consider if this is something you are willing and able to change about yourself, or you risk having a very rough time in the markets.

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