The largest academic study ever conducted on day trading shows that most traders lose money even during a bull market. Only 5% of active traders were able to earn significant profits two years in a row.
Are 95% of traders dumb? Hardly. As a trading coach , I believe traders are among the intelligent and motivated individuals.
Even so, most traders get fooled by news or price action and behave in ways that limit or erase profits.
Is this self-sabotage? Fear of success? A hidden wish to fail? I don’t think so. The struggles of most traders arise for a different reason: the trading environment turns our own reward-seeking and self-protective instincts against us.
Trading for a living is harder than it seems at first. You were probably not mentally or emotionally prepared for the randomness in the market you trade.
There is a saying that goes: “Doing the same thing over and over and expecting different results is the definition of insanity.” In trading, however, it’s the very definition of normal. Let me explain.
We constantly get tricked and trapped due to random price action. Our job as traders is to behave consistently and predictably in the face of very different results than we expect. This is a skill few have practiced in daily life, where results are more directly linked to action.
There are so many different strategies,Find one that fits your personality and do your best to master it. The fastest way to learn is to study success. In other words, find someone who is successful at the strategy you like, and then mimic them with your own style.
CUT LOSSES, LET PROFITS RUN
Nobody likes to lose. In the midst of losing, it’s easy to imagine the desire for a turnaround being somewhat overwhelming. This becomes problematic when trading.
Human psychology suggests that people hang on to losses longer than they should. Likewise, in the face of profit, people seem to jump out of a trade to secure their winnings—we want those pips secured.
One way to do this is with stops and limits. You can predetermine the amount you want to risk and the amount you want to profit. This has the benefit of eliminating human emotion from your trading.
Students of the market:
Successful traders NEVER get complacent. They are always eager to learn, constantly looking to improve their skills.
One way to improve is through post analysis of your trades. It is important to look at your numbers and make sure your losses are smaller than your gains.
For technical traders, studying your entry points and looking at charts that worked (and didn’t work) is part of the constant learning experience of becoming a confident and consistently profitable trader.