Its a Known fact that 90 % of traders lose money in markets, only a very small proportion of day traders makes money year over year.
This is a staggering statistic and one that is echoed around most of the financial markets of the world.
But why do so many people fail in the financial markets?
The reason for such dismal performance can ve due to
- Lack of proper trading strategies.
- Lack of Mental Strenght to cope up with losing streak.
- There is a secret formula that only the ‘chosen few’ know about.
- Most traders do not know what it takes to be profitable.
Among the most common reasons for failure for traders based on my intreaction of 25000+ traders
- No Strategy
- Lack of focus and Motivation
- Unwillingness to learn.
- Lack of mentorship and No Emotional Discipline
- Unable to Set Goals + Stick To Them
- Under capitalized Trading
- No accountability
Lets Discuss them in Detail
1. No Strategy
The Number 1 reason why traders fail is that they have no strategy.
A lot of traders don’t want to acknowledge this but the fact is they have no idea what they are doing. A trading system or trading strategy is the ‘nuts and bolts’ of any trading plan. At its most basic it should cover stock selection, entry and exit methods, risk management and money management techniques.
I am sure you must have seen some of them: strategies based on super trend indicator, or RSI or MACD or some combination of indicators. The reality is that these are not strategies; these are just technical setups and no one can consistently make money using these setups alone.
Professional traders, on the other hand, use time-tested strategies that are based on the behaviour of the market and the market participants; something that gives them an edge over other traders.
2. Unable to Set Goals + Stick To Them
Most would-be traders jump straight into the stock market without any clear idea of what they want or what they are trying to achieve. They have no short, medium or long term Goals. Their only focus is to make money and make it fast!
Participating in the stock market is sometimes compared to a battle field or war zone. And no army would enter a war with out a precise set of Goals. Professional traders are no different. They set precise short, medium and long term goals.
When you trade in the stock market you are trading against professional traders, market makers and fund managers. And because you’re competing against these market pro’s, you need to know precisely what you’re aiming to achieve?
A lack of clearly defined objectives leads to a poorly designed trading plan, inappropriate risk taking, woeful decision making and ultimately financial destruction.
To get started you need to consider a number of basic points including:
- What you want to achieve over the long term?
- What is important to you financially?
- What your specific investment goals are?
- How much money you want to earn each month (or year) from your investments?
- What annual income would you like?
- What you’d like your Net Worth to be in 1 year, 5 years, 10 years and 20 years time?
- What financial assets you’d like to own?
- How much money you’d like to have in retirement?
- What your plans for retirement are?
- What benchmark will you use as a means of tracking your performance?
Answering these questions gives you a basic set of financial objectives which you can use as a foundation for your overall wealth creation (investment) plan. And that leads me to the next area where traders get it wrong – not having a wealth creation plan.
3. Focused too much on Knowledge
When I entered into stock markets, I was of the impression that I need to acquire a lot of knowledge on how things work, how various strategies work ? How technical analysis can help in trading ? I learnt all the technical indicators, back tested them on the past data, wrote lot of programming scripts to test my hypothesis.
But then, over the months, I realized that “knowledge” is just a secondary element to trade successfully in stock markets. Almost all the good traders around the world agree that “knowledge” does not contribute more than 10-15% in being a successful trader. It’s an important thing , but certainty not the holy grail. We need to Master Few Things to become better trader.
4. No accountability
Trading can be very lonely and if you don’t have people around you that help you grow, trading can become very frustrating. And even if you are in contact with other traders, often it’s not supporting your development as a trader.
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