Why do traders fail?

[rsh01]

I should have emphasised...beginner to beat tiger woods or Soros...not going to happen!

my strike rate is better than soros'. only just!

a mate (who was kind of a beginner) beat my old tennis coach who beat peter mcnamara who once beat boris becker, who was #1 in the world at the time, which made my mate the unofficial #1 in the world. the story made the telegraph - quite funny.

if i ever got to play woods i wld just get (pay) really fit women to carry my clubs.

 

[Purple Brain]

Sadly, I think some of them were trading for longer time periods than even they were anticipating.

That is a great line.

Together with your data and graphs on W:L and more tellingly average Win versus average Loss highlight what for me says it all.

Even when I got to a reasonable W:L, such was the imbalance in my average win v average loss that it was tough going to make a small profit each day. It actually paid me to take more losers, reduce my W:L. I'd battle away courageously to win 5 or 6 trades in a row and have all but a few quid of my cumulative profits taken back on the next losing trade. Energy sapping.

 

[NVP]

Sadly, I think some of them were trading for longer time periods than even they were anticipating.

Here's a scenario: A trader with poor risk management places a trade without a stop loss hoping for a quick 50 pip profit. Unfortunately, the trade goes against them instead and without a stop loss they end up floating a loss of 50 pips instead. Reluctant to take this loss, they hold the trade longer and longer, risking more and more of their account. They might even try adding to their losing position which only increases their leverage and magnifies draw downs further in a trade that's trending against them.

I think this is how the average losses end up becoming so much bigger than the average winners. People aren't doing a good enough job managing their downside risk.

Good point Jason............

N

 

[timsk]

. . . They might even try adding to their losing position which only increases their leverage and magnifies draw downs further in a trade that's trending against them . . .

Hi Jason,
Without wishing to take the thread off topic, I'd be interested to hear your views about averaging down - specifically in a trading context. It's common practice of course amongst investors holding for the medium to long term, but it's far less common amongst traders. Generally, as implied by your post, it's frowned upon and many traders would say it should never be practiced under any circumstances. Are you of this view, or are there risk and money management strategies out there that can employ it to good effect? I ask because I imagine you know lots of traders (through your job, if not personally) and my guess is that of the successful ones, there will be one or two who utilise this technique. So, perhaps it's time to re-examine the much maligned practice of averaging down to see if it really deserves all the bad press that's heaped upon it.
Tim.

 

[Jason Rogers]

It actually paid me to take more losers, reduce my W:L.

This is a key point that some people never accept. It is sometimes better to have a lower win percentage, and instead focus on making the most of your winners, while minimizing the damage from your losses.

For example, Babe Ruth is considered one of the greatest if not the greatest baseball players of all time. His batting average was .342 meaning he only got a hit 34.2% of his times at bat (btw, for those of you who don't follow baseball, that's an excellent average). But what really made the Babe one of the all-time greats was his slugging percentage of .690, which is the highest in major league history.

Slugging percentage is essentially the baseball equivalent of expected value, which I discussed earlier: http://www.trade2win.com/boards/first-steps/179056-why-do-traders-fail-2.html#post2191136

It basically means that when Babe Ruth got a hit, they tended to be big hits, with many of them being home runs. That more than made up for the 65.8% of the time he didn't get a hit. I hope my baseball analogy wasn't too obscure. :|

 

[Jason Rogers]

Hi Jason,
Without wishing to take the thread off topic, I'd be interested to hear your views about averaging down - specifically in a trading context. It's common practice of course amongst investors holding for the medium to long term, but it's far less common amongst traders. Generally, as implied by your post, it's frowned upon and many traders would say it should never be practiced under any circumstances. Are you of this view, or are there risk and money management strategies out there that can employ it to good effect? I ask because I imagine you know lots of traders (through your job, if not personally) and my guess is that of the successful ones, there will be one or two who utilise this technique. So, perhaps it's time to re-examine the much maligned practice of averaging down to see if it really deserves all the bad press that's heaped upon it.
Tim.

Hi Tim,

I think the important factor is whether a trader wants to add to their position because they see a real opportunity, or because they are unwilling to accept a loss. For me, it's hard not to let emotions get in the way after I'm already in a losing trade, so I try not to deviate from the risk management plan I originally had in place before opening a trade.

I've seen some successful traders actually plan to scale into a long term position at different price levels, so they see retracements as opportunities to add size. As long as you make such a decision before you're in the trade and have taken into account appropriate leverage and adequate margin, I think it's fine.

The problem is that some people are making the decision to add to their position for the sole reason that it's losing, and they want to salvage it. These are the times when people are most likely to overleverage and abandon their risk management principles.

 

[bwge]

Meditation has helped me a lot, will definitely help
Affirmations will NOT work when you are emitting negative vibrations!
so first start to work from within, this is not a quick fix, will take years for someone who has lots of blockages within the system
Patience and persevere is the key
Good luck

 

[DionysusToast]

My guess is most traders fail because they have no idea how to trade.

Price action is the effect of trading, the result of trading.

The majority of people simply have no idea what is cause and what is effect. Nor do they even consider the difference.

 

[neil]

Blockage within the system ?

Meditation has helped me a lot, will definitely help
Affirmations will NOT work when you are emitting negative vibrations!
so first start to work from within, this is not a quick fix, will take years for someone who has lots of blockages within the system
Patience and persevere is the key
Good luck

Laxative ! Shifts that blockage in less than a day


(Sorry bwge - couldn't resist)

 

[pro_fx]

Without prior knowledge of trading, when a novice trader bets in hue money 99% loss but when a trader is confident of his trading skills and strategies with actual demo a/c experience then we can say some chance to gain. And if a trader is really good at markets, its trends patterns, price movements of particular stocks and everything like when to invest and where,that particular trader is called professional and gain is inevitable.

 

[spinola]

I have a project to complete and im a beginner to trading so i am not very familiar with it, i need to know detailed reasons to why traders fail

Help would be appreciated :smart:

Likely because of lack of education. Fortunately there is plenty out there to purchase.

 

[Jack86]

To my view most traders fail because of lack of knowledge. One should refer to trading very seriously, because if you don't the losses will be big.

 

[melaniehamilton]

Bad management, bad practice, a bad choice of location failure to invest in new products and efficient technologies, inadequate funding, are some of the reasons why traders fail.