Why Do Most Traders Fail?

It’s a burning question when you begin your trading career and soon find out that most traders fail.

Let’s talk about what trading requires.

Trading requires you to make quick decisions and at the same time to be disciplined with those decisions. You might hear some news that a well-known investor has just bought a popular company’s stock.

What’s the first thing that comes to mind? Maybe you think it’s time to buy. Making a quick decision like this requires a lot more than just following blindly.

It took me quite some time to improve my trading strategies. I really had a breakthrough when I realized the key to consistent success was controlling my emotions, and reactions, and practicing self-discipline.

It’s bad enough that you cannot predict what the market will do, but if you add to that not knowing what you will do, you’ve created a recipe for disaster. It doesn’t matter what strategy you implement, or what type of software you are using, if you are not in control of yourself, nothing else will make you successful.

I’ll give you the same questions I had to ask myself before I learned how to become disciplined and develop rock-solid risk management skills.

• Does the decision I am about to make fit into my strategy?
• What strategy does this trade actually fit into?
• If I am wrong, where do I stop?
• How much money am I risking in this trade and what is the potential of reward?

Believe it or not, the answers to these questions are what traders oftentimes find very difficult. These decisions and the process of making sure these decisions fit within your risk management process and strategy are tough. Combine the stress of putting real money on the line at the same time, and it’s no wonder that many traders make more wrong decisions than right ones.

I certainly understand that stress.

There have been times when I have placed a few solid good trades within the first hour of the market opening and up about $1,500. Then when I believed the stock couldn’t go higher, the first sign of a breakdown I went all in on a short. Not just “house money” either, I doubled and tripled down.

The next thing I knew I was convincing myself that I was right and I refused to sell. I left my PC believing when I got back I’d be closing a five-figure winner. Boy was I wrong, I returned to find that my broker was selling lots of shares and covering as the stock continued to spike. What was a $1,500 profit day turned into a $12,000 loss.

Some of the most successful traders will tell you, it takes events like what I described happening, and worse, including completely ‘blowing’ up your account, to realize how important discipline and risk management are to trading.

So how can you reduce the chance of failure?

First, foster a strong state of self-awareness.

Are you focused?

Are you calm?

Are you making good decisions?

Review your performance and confirm whether you are trading profitably.

Most traders fail because they trade with emotions, they do not have a solid trading education, they spend most of their time trying to follow other traders, whether in a chat room or on Twitter, and they don’t have any discipline or ability to manage risk.

It all comes down to being disciplined while making quick decisions not based on emotion, but on following specific rules as part of a tested and proven trading strategy.