Why stock traders fail
Beginner Stock Market Investing, Stock Market Investing Advice, Stock Market Investing Strategies
There is a famous rule of thumb that 95 percent of all businesses fail and stock trading is certainly no exception. This failure rate occurs regardless of age, gender or experience and, in fact, failure is a constant factor in most human endeavor whether you are playing a sport for the first time or attempting to find a cure for cancer. This 95 percent figure actually originates with Dr. Edward Deeming, the father of Total Quality Management, and a highly venerated figure in Japan even today. He observed that people do not fail because they do not want to succeed or because they don’t work hard. People fail because the systems they use are inadequate or not suited to the task. One must come to the conclusion that traders fail because the systems they use or non-existent or defective.
The successful trading system will have the following characteristics:
-There will be a definite method. In other words, there would be a logical pattern and a definite set of trading rules according to which you trade. If you are asked how you arrived at a particular trading position, you should be able to provide a reasoned and logical answer. If you are consistent in your approach, your answer would probably be the same even after a few months. This does not mean that the system should be inflexible or set in stone but it does mean that you should have a comprehensive and complete system before you begin to trade.
-You will have the discipline to stick to your method. While this may sound like a blinding flash of the obvious, many trading losses are made because the trader allows emotion to interfere with his business judgment. Because he has an emotional attachment to a particular position, he cannot objectively assess the situation and cut his losses if the necessity arises. Moreover, because of ego problems, many individuals are reluctant to admit that they are wrong. That is absolutely no point in devising a method if you do not have the discipline to follow your method.
-You have to accept that there is no substitute for experience no matter how talented or intelligent you may be. In fact, many people who advocate demo trading for a newbie before he actually trades in the market forget that trading is not merely a matter of methodologies but involve a number of psychological factors as well. In fact it can be positively dangerous for a novice to do well in demo trading because that might engender a false feeling of security and self-confidence. Only through experience can you learn to control your emotions.
-You should have the courage to accept that you will lose money some of the time. Even in baseball, a batting average of 0.400 is considered very good though it translates into a 60 percent failure. The key to success is to limit your losses to what you can afford to lose and to win bigger than you lose. Responsible management of your money will also assist you in achieving this objective.
Tags: Investing, Stock Market, Stock Market Investing, stock trading, stocks, traders