Why do traders fail?

[jammin]

One word, psychology.

Temjin, I agree with you but would have put it thus: The 3 most important parts of trading are 1) psychology, 2) psychology and 3) psychology.
I find it very dificult to be honest and objective when analysing my trades and my performance in comparison to my trading plan. I have particular difficulty with exits. I tend to move my stop loss around due to conflicting feelings of fear and greed and end up stopping out too early (stops are too tight) thus not letting my profits run.

 

[tech/a]

THIS

I find it very dificult to be honest and objective when analysing my trades and my performance in comparison to my trading plan. I have particular difficulty with exits. I tend to move my stop loss around due to conflicting feelings of fear and greed and end up stopping out too early (stops are too tight) thus not letting my profits run.

IS CAUSED BY THIS

Traders fail because they follow "Plans" or "Rules" that are flawed,methodologies that are logical paths to success in the traders mind yet doomed to failure when executed

Nothing more nothing less..

If you hade a methodology with PROVEN positive expectancy with a blue print of method performance over years of testing and even Montecarlo analysis you'd NEVER I tend to move my stop loss around due to conflicting feelings of fear and greed

Youd have no need to you would KNOW that the way you trade would result in a positive expectancy of X.

You can have the discipline of a Monk and still fail if your discipline is based around a flawed concept.

Which MOST ARE.

 

[jammin]

Thanks for the insight Tech/A.
My trading plan is flawed. I need to perform more comprehensive back testing that includes exit strategies, to come up with a plan which has defined entry and exit parameters. With the expectancy levels produced I would have the level of confidence, as you have stated, to stop playing with the stops. My current plan is very focussed on entry criteria with "motherhood statements" refering to the exit, a flawed plan as you have said.

 

[hongwong]

I also think day to day trader fail because they are depending on money from selling and trading shares. Therefore they have to sell or buy to make money.
Other companies live off the commissions

Economist around the world says
Economist can determine if a price of a stock is going up/down and they can determine the time of a stock moving, but they can’t match this with each other.
(Take from Alan Greenspan).

Most people are trying to do this. So if the worlds best minds and computers can’t work this out. I go hmmmmm.

I believe this best method is to do your homework on the share and wait for the rewards.

Warrant Buffet and Benjamin Graham seem to have done well.

Just an option.

 

[nizar]

Agree wholly with tech.

So much talk about psychology, but the best psychology in the world is not useful if your plan does not incorporate sound money management, and has not been tested and is not proven to trade with a positive expectancy.

 

[Slothhead]

Tech/A has hit it pretty solid.

The adage of "practice makes perfect" is a lie. If you practice your golf swing 15 hours a day, and then go and hit the ball, you will find that you are perfect at that swing, however, this may correlate with a ball in the bushes through a 30 degree slice.

So in order to be "perfect" you must practice perfectly. Thus if you practice the correct thing , you will ultimately become better at it, so long as your noggen allows it.

No offence, but i dont think that we can even be mentioning Warren Buffet in any of these conversations. I often have a chuckle when people talk about the Warren Buffets, and how the buys for long term and fundamentals and blah blah blah.

Firstly he isnt a trader,
Secondly, he isnt an investor of the share market either.

Buffet is interested in business, that is it. He buys based on the business.
I am sure he doesnt sit down behind the computer, and say "gee that looks good, i might put in a buy for a million shares" so he logs onto commsec and off he goes. He buys considerable portions of businesses. To produce cashflow.


My belief why so many people get trading wrong, is because they treat it like a hobbie. If you want to make a go of it, like any job, you have to do the work required.

Oh and one last thing, buying shares, as an "investment" is not investing. basically all you are doing is placing your money into an interest earning bank account called BHP or TLS. This bank account will pay you some percentage with the possibility of growth valuation.

Maybe this is just me, i consider investing in shares in order to produce cashflow to build capital. i.e. you invest in BHP to write options, to produce cashflow etc. and the cycle goes on.

ok that is enough of my rambling

 

[wayneL]

Agree wholly with tech.

So much talk about psychology, but the best psychology in the world is not useful if your plan does not incorporate sound money management, and has not been tested and is not proven to trade with a positive expectancy.

So turning the question around: Why do traders succeed?

1/ Find a positive expectancy method.

2/ Employ sound money management.

3/ Manage your psychology so-as to faithfully implement 1/ & 2/

Simple really, but not easy.

 

[wayneL]

Tech/A has hit it pretty solid.

The adage of "practice makes perfect" is a lie. If you practice your golf swing 15 hours a day, and then go and hit the ball, you will find that you are perfect at that swing, however, this may correlate with a ball in the bushes through a 30 degree slice.

So in order to be "perfect" you must practice perfectly. Thus if you practice the correct thing , you will ultimately become better at it, so long as your noggen allows it.

No offence, but i dont think that we can even be mentioning Warren Buffet in any of these conversations. I often have a chuckle when people talk about the Warren Buffets, and how the buys for long term and fundamentals and blah blah blah.

Firstly he isnt a trader,
Secondly, he isnt an investor of the share market either.

Buffet is interested in business, that is it. He buys based on the business.
I am sure he doesnt sit down behind the computer, and say "gee that looks good, i might put in a buy for a million shares" so he logs onto commsec and off he goes. He buys considerable portions of businesses. To produce cashflow.


My belief why so many people get trading wrong, is because they treat it like a hobbie. If you want to make a go of it, like any job, you have to do the work required.

Oh and one last thing, buying shares, as an "investment" is not investing. basically all you are doing is placing your money into an interest earning bank account called BHP or TLS. This bank account will pay you some percentage with the possibility of growth valuation.

Maybe this is just me, i consider investing in shares in order to produce cashflow to build capital. i.e. you invest in BHP to write options, to produce cashflow etc. and the cycle goes on.

ok that is enough of my rambling

Oh! Agree wholeheartedly.

What is equally amusing, if not irritating, is the Buffet minions bagging trading in shorter time frames.

I posted an article somewhere that "day" trading in fact may have the best "Sharpe Ratio" of all. (presuming positive expectancy of course)

 

[nizar]

Tech/A has hit it pretty solid.

The adage of "practice makes perfect" is a lie. If you practice your golf swing 15 hours a day, and then go and hit the ball, you will find that you are perfect at that swing, however, this may correlate with a ball in the bushes through a 30 degree slice.

So in order to be "perfect" you must practice perfectly. Thus if you practice the correct thing , you will ultimately become better at it, so long as your noggen allows it.



No offence, but i dont think that we can even be mentioning Warren Buffet in any of these conversations. I often have a chuckle when people talk about the Warren Buffets, and how the buys for long term and fundamentals and blah blah blah.

Firstly he isnt a trader,
Secondly, he isnt an investor of the share market either.

Buffet is interested in business, that is it. He buys based on the business.
I am sure he doesnt sit down behind the computer, and say "gee that looks good, i might put in a buy for a million shares" so he logs onto commsec and off he goes. He buys considerable portions of businesses. To produce cashflow.


My belief why so many people get trading wrong, is because they treat it like a hobbie. If you want to make a go of it, like any job, you have to do the work required.


Oh and one last thing, buying shares, as an "investment" is not investing. basically all you are doing is placing your money into an interest earning bank account called BHP or TLS. This bank account will pay you some percentage with the possibility of growth valuation.

Maybe this is just me, i consider investing in shares in order to produce cashflow to build capital. i.e. you invest in BHP to write options, to produce cashflow etc. and the cycle goes on.

ok that is enough of my rambling

Agree.
Buffet is NOT an investor.

He buys businesses, and usually his stake is enough so he has an influence on how the business is run, improvements/cash flow etc, can be made.

But if your buying $5 or $10k parcels, then Hmmmm.....

And every1s probably saying, but i bought and hold the last few years, and its worked for me.
Yeh - its called a bullmarket!

And also agree with your previous points, its fact that most traders ruin their systems by trying to turn a good system into a perfect one.

 

[Bronte]

We prefer: "Practice makes Progress"

 

[hongwong]

intresting, what about peter lynch, what stlyle does he trade at ?


Quote --

Buffet is interested in business, that is it. He buys based on the business

I would say that would be the best reason to buy and trade in a stock ! after all you are investing into a bussiness and not lines, that appear on commsec.

Kind of makes me chuckle to myself. I draw some lines on a piece of paper and you can predict the way it going to move?

If there one thing I have learnt from stock trading/investing and I would assume I started this when I joined these forums;

NEVER EVER WALK INTO A ROOM when a charist and fundamental person are debating the best method to trade.(unless u have popcorn).

If i may bring attention upon a book
"A fool and his money, the odyssey of an average investor" by John Rothchild.

Made me laugh when reading it.

 

[wayneL]

intresting, what about peter lynch, what stlyle does he trade at ?


Quote --

Buffet is interested in business, that is it. He buys based on the business

I would say that would be the best reason to buy and trade in a stock ! after all you are investing into a bussiness and not lines, that appear on commsec.

Kind of makes me chuckle to myself. I draw some lines on a piece of paper and you can predict the way it going to move?

If there one thing I have learnt from stock trading/investing and I would assume I started this when I joined these forums;

NEVER EVER WALK INTO A ROOM when a charist and fundamental person are debating the best method to trade.(unless u have popcorn).

If i may bring attention upon a book
"A fool and his money, the odyssey of an average investor" by John Rothchild.

Made me laugh when reading it.

[sigh] such a tiresome argument.

This has been gone over countless times in countless places. Fundies try to disparage technical traders with the use of satirical phrases such as "Kind of makes me chuckle to myself. I draw some lines on a piece of paper and you can predict the way it going to move?"

It show utter ignorance of the premise of technical trading and an intellectual slovenliness that makes discussion futile.

Another one for the "not to take seriously" list.

 

[professor_frink]

NEVER EVER WALK INTO A ROOM when a charist and fundamental person are debating the best method to trade.(unless u have popcorn).

How true. The same could be said of posting on an internet forum when they are debating.

Hang on, I just did that.

AND I HAVE NO POPCORN

Kind of makes me chuckle to myself. I draw some lines on a piece of paper and you can predict the way it going to move?

I had a chuckle to myself too hongwong

 

[tech/a]

Stage 2

When you have a positive expectancy method

Traders think its all about the method.
When its all about the APPLICATION of the method.

Example.
Techtrader---although I had a great deal of input into its design
In my veiw is a pretty average method.
Has returned 20+% year in year out for nearly 5 yrs now.

So our starting capital at $30,000 compounded say 26% a year over 5 yrs
$97,273.---Not bad.

Yet as of last Friday its liquidated Equity is $350,000.

And people argue about the ANALYSIS!

So do you really think that its about the analysis?

People fail because they just dont know how to succeed.
Most have never been in the position to APPLY the basic principles of ECONOMICS.

They do the same thing day in and day out and expect a DIFFERENT result.

As is evidenced by most of the posts here!

 

[wayneL]

Stage 2
So do you really think that its about the analysis?

Yes!.....

.....or....

No!

Depends what you call analysis I suppose. Determining that the close has crossed the HHV(70) could be called analysis. Then again it might not.

For clarification, what do you call "analysis".

 

[tech/a]

"Kind of makes me chuckle to myself. I draw some lines on a piece of paper and you can predict the way it going to move?"

The line will do one of 5 things or a combination of most of them and cannot do anything more at any point in time.(we are talking about a line not a stock)
I will either be proven correct or incorrect.
I wont care which of one or combination of the things it does next.
I'm a technical trader.
I wont care how its drawn or what its drawn with,wether it was drawn well or the person who drew it was/is good at drawing lines.

I wont be predicting anything---I'm a technical trader I dont Predict!

 

[tech/a]

$97,273 Compounded BUT
is $350,000 as of Last Friday.

For clarification then do you think the massive difference is about the analysis?

Thought my point was/is clear---seems not.

 

[wayneL]

The line will do one of 5 things or a combination of most of them and cannot do anything more at any point in time.(we are talking about a line not a stock)
I will either be proven correct or incorrect.
I wont care which of one or combination of the things it does next.
I'm a technical trader.
I wont care how its drawn or what its drawn with,wether it was drawn well or the person who drew it was/is good at drawing lines.

I wont be predicting anything---I'm a technical trader I dont Predict!

Exactly. This is what some don't grasp. T/A is not about prediction. It doesn't matter how many times you point it out, they come back with the same (non) point.

$97,273 Compounded BUT
is $350,000 as of Last Friday.

For clarification then do you think the massive difference is about the analysis?

Thought my point was/is clear---seems not.

No it is not clear. That is why I asked you what you consider analysis. I am not having a go at you, but asked you for clarification, which you have not done.

I cannot respond until this is done. This may short-circuit your above question .

 

[tech/a]

Wayne.

In the case of any PROVEN methodology or if you like to call it a system you simply have a set of conditions which if met and applied as tested then you can expect a similar result.
No analysis just repetitive application.

You can improve upon profitability on any repetitive application of a proven method,well beyond that that can be gained by attempting (as Nizar says) to find the perfect system through tweeking analysis---often endlessly.

Fundamental OR technical.

 

[hongwong]

[sigh] such a tiresome argument.

This has been gone over countless times in countless places. Fundies try to disparage technical traders with the use of satirical phrases such as "Kind of makes me chuckle to myself. I draw some lines on a piece of paper and you can predict the way it going to move?"

If you can show me a method that works over the long run for technical. I would love to here about it.

Also point of a few successful traders that have been in the game for 20 years that do technical, I am sure I would love to get the book and read it.

It appears to me if you follow what was being said. I offer an option why traders fail.

I have not been rude or call the technical people names. Infact I would love to learn more about it.

I suggest you re-read what you have started, because I have never dismissed technical trading at all. I just have not found anyone that been in the game for 20 year+ in technical trading that has been successful like peter lynch or other name. As this is how long I plan to be investing/trading.

I express and option and it seems you chuckle to yourself over buffet minion’s ways.

Now I wonder who ignorance on the topic

At the end of the day we are here to make profit and some of us learn.

As pointed by alot of people Physiology seem to be the biggest pitfall.

So If you believe you are in a good stock and know you have invested in a good business. And the price of the stock goes up or down, I know invested in a good good company.
That has solid management
Solid revenue etc all that “fundies stuff”

But if the prices of a stock goes up or down and all I am looking at is a chart?
I would like to know if the market is not under reacting/ over reacting etc.

I am asking a question: Can a chart tell me this? …. As this would eliminated a big physiology part of share trading for the technical people.

Thanks