Why Traders Fail
Each year, the trading community welcomes new members. They come from all walks of life and have different backgrounds. The one thing that they have in common is the desire to become a successful trader.
The question that each of them has in the back of their mind is this: do I have what it takes to be a successful trader?
More often than not, many fail. Why they fail is one of questions that I’m most often asked to talk about. Trading is a difficult business, more difficult than most imagine. In the end, whether you succeed or fail as a trader can be traced to four basic problems. All but one can be fixed with a little effort.
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The biggest obstacles that a trader must overcome are: (1) a lack of confidence; (2) a lousy trading plan; (3) faulty analysis; (4) trouble pulling the trigger.
The first step in overcoming these hurdles is to stand in front of a mirror and have a long talk with the face staring back at you. It starts and ends with the face you’re looking at.
Lack of Confidence
Lack of confidence is a killer – literally. If you’re afraid of your shadow, trading is not something you are going to be very good at. Trading is a “eat or be eaten” game. You either do lunch or you are lunch. I’m not talking about false bravado here. Confidence comes from knowing who you are and what makes you tick. It’s something that you have and it comes from down deep inside you. Confidence is an acquired trait.
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Lousy trading plan
In order to be successful, you need to have a trading plan and it needs to strike a balance between “eat well” and “sleep well”. It took me a few years to find a method that worked best for me. My plan, which is written, embraces my strongest traits and lays waste to my worst.
Traders come in all shapes and sizes. Some scalp, some trade for the long run and others day trade. I’ve found that I’m comfortable trading as a position trader using an intermediate time frame. When I enter into a trade, I’m looking for a 25 percent move.
The last point that I want to make here is that your plan must be in writing. If it isn’t, there’s absolutely no way that you’ll stick to it during the inevitable drawdown.
Faulty Analysis
Trading is pretty much a zero sum game. You’re either right or wrong. You either make money or you don’t. When it comes to trading, three types of analysis are usually involved: fundamental, technical or quantitative.
I’ve found that I’m best suited psychologically to technical trading. I have a strong math and deductive logic background. To me, it’s all about supply and demand. Not surprising then, the method of technical analysis that works best for me is the point & figure method which has been in use for more than 50 years.
When it comes to analysis, you have to find ground that you’re comfortable standing on. I’ve tried all three types of analysis and I’ve never been able to get comfortable using fundamental or quantitative analysis.
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Trouble Pulling the Trigger
People that have trouble pulling the trigger, lack confidence, usually have a lousy trading plan and aren’t using their analytical tools correctly. I’ve been a trader for more than 25 years and from time to time, this problem rears its ugly head.
This is a perplexing problem and affects even the most seasoned and battle hardened trader. For me, it usually shows up during an extended drawdown when nothing is going right. The best luck is not luck at all.
The way that I overcome this obstacle is re-focus on my “list”. My “list” is nothing more than a short list of rules that I created to ensure that when it came time to pull the trigger, I did. This five-point trading checklist is just that a checklist. When I’ve checked off each point, I know intuitively that I’ve done all that I can do and it’s time to make the trade. (Note: if you would like a copy of my 5 point trading plan, just send me an email and I’ll send it out to you)
It takes a lot to be a successful trader. It’s emotional too. I’ve experienced the highest highs and the lowest lows – both on the same day and before lunch. If you’re not trading up to your potential take a step back and dissect the four points that I’ve discussed. In the end, trading is a personal matter and in order to be a success, you need to find what works best for you.
By R.A. Christy
R.A. Christy is a professional stock trader and recognized authority on technical analysis. His web sites (http://www.long-short-trader.com and http://www.christyinvestments.com) contain a wealth of information, articles and resources on everything you'll ever need to know about trading stocks. If you’re really serious about making money in the stock market, you need to learn to trade the way the “pros” do. Email address to use: rac@christyinvestments.com
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