Why most Lose Trading?

This is a discussion on Why most Lose Trading? within the First Steps forums, part of the Reception category; I just want to start a thread on Key factors which lets mostly in losing Trade. Why a newbie starts ...

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Old Nov 24, 2009, 8:35am   #1
 
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Why most Lose Trading?

I just want to start a thread on Key factors which lets mostly in losing Trade.
Why a newbie starts losing trade, what are the measures which they must follow it up to be stable if not successful.

I hope much of you will like to share your experiences across for the newbie’s.
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Old Nov 24, 2009, 9:07am   #2
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Many reasons behind consistent losing, all psychological within the trader themselves. These are expressed through poor money management, which fails to hold on to the trader's capital long enough for them to overcome their own internal failings.
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Old Nov 24, 2009, 9:25am   #3
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lets say markets are random and you have a 50% chance of being right or wrong...to survive you need to make more money when you are right than you lose when you get it wrong.. sounds easy but it is the hardest thing to do.. run profits cut losses!.. most newbies (and many experienced traders!) will run losses and cut profits short.
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Old Nov 24, 2009, 10:16am   #4
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I started a thread like this once, and someone replied "trading must be difficult, because otherwise we'd all give up our jobs and do it". The causality of this argument is perhaps the wrong way round, but you get the idea.

Try reading Van Tharp's book. He outlines some of the common reasons why traders go wrong - breaking their own rules, betting too much, fearful of losing profits, hopeful losses go away, etc.
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Old Nov 24, 2009, 10:19am   #5
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Sometimes it's simply arithmetic. If you can generate 30 pct returns on capital a year, that's a good return. So if you need 30k to live, your starting pot has to be 100k. The average spread bet account balance is 20k. Thus it's likely betting too much could be a factor. I now expect many comments back along the lines of "I make 30 pct a month", which is usually what happens.
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Old Nov 24, 2009, 10:37am   #6
 
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Thats exactly what happened to me.I started the first year with £5 and soon lost that. I then doubled the next £5 making me break even. Ahhh it took me a year to do that so with living exspenses i was down £25,000 and yet my trading was break even. The next year i made £8000 but was still at a net loss of nearly £40,000. You get the picture guys.Learn from it,the most important things are money management,discipline,risk reward ration and then finally your set ups and trades
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Old Nov 24, 2009, 11:10am   #7
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The French consulate, a property in Sydney, recently sold for £13mio equivalent to one of the Murdoch sons. The French originally bought it for £26,000 in 1956. Sounds like a pretty impressive return, doesn't it.. the value increased 500 times.

However, if you work it out, it equates to an annual return of 12.5% compounded. Which sounds like nothing, put that way.

Hedge funds usually aim to make 20 pct a year. With the power of compounding, 20 pct a year is a formidable number in the long run. There's no point trying to make your fortune overnight. Trading is a business like any other.. aim for achievable and consistent returns whilst minimising risk of ruin, and over time, it should work out.
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Old Nov 24, 2009, 11:28am   #8
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Originally Posted by meanreversion View Post
Sometimes it's simply arithmetic. If you can generate 30 pct returns on capital a year, that's a good return. So if you need 30k to live, your starting pot has to be 100k. The average spread bet account balance is 20k. Thus it's likely betting too much could be a factor. I now expect many comments back along the lines of "I make 30 pct a month", which is usually what happens.
30% annual return on £100K trading capital employed is pitiful quite frankly. However, as an investor, or buy and hold 'share monkey' it would be stunning, it's important not to confuse both.

You're also wrong on the assumption that SBetters have an average account balance of £20K, it's closer to £5K and in conversation with the major firms they only regard 10-15% of their client base as "professional" and there are hundreds of clients who make 7 figure sums from a surprisingly low capital base.

Back to the OP, the usual suspect mistakes a new trader makes have been done to death, there's probably hundreds of threads were the same question has been asked over and over again; under capitalised, no discipline, poor management (of self and money) lack of ability (having no 'edge'), lack of knowledge, lack of commitment...
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Old Nov 24, 2009, 11:43am   #9
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If 30% is pitiful, what would you regard as acceptable?
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Old Nov 24, 2009, 3:58pm   #10
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If 30% is pitiful, what would you regard as acceptable?
Hmmm...let me come at this from a different angle as I regard this ROI model, in relation to swing trading; spread betting or forex in particular, as outdated and irrlevant...

If, for example, you constantly have 8 currency pair trades active, and 'bet' at 3 ppp, (with a GS of 50), then your exposure to the market is less than £1,500. You should expect to make (net) 35-40 pips per currency pair at least once every 24 hours.... although since Sunday evening/this afternoon that target has been smashed, as it was last week...and the week before.

Similarly I regard this "risk only 2% of your account capital" mantra as outdated and irrelevant....once you have your proven edge you should be quite content to have only £15K in a particular SB account and be comfortable risking up to circa 2K at any given time...
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Old Nov 24, 2009, 5:34pm   #11
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My main beliefs are:
1. Lack of capitalization
2. Over trading
3. Improper mindset

Just about every trader pays their dues to the market, without enough money, even a small draw down will paralyze you. A lot of newbie traders go in to the markets and trade time after time thinking they'll finally hit the right trade and end up blowing out their account. And lastly, you need to be able to handle the emotional aspects of trading. To be honest, most people out there are just not simply cut out to be full time traders. It takes a lot of work and dedication. It's a stressful FULL TIME job in itself. Brett Steenbarger's blog has a lot about newbie traders and their chances of success; it would be my top resource to check that stuff out; he can explain it a lot better than me.
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Old Nov 24, 2009, 6:28pm   #12
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Originally Posted by Hercules88 View Post
My main beliefs are:
1. Lack of capitalization
2. Over trading
3. Improper mindset

Just about every trader pays their dues to the market, without enough money, even a small draw down will paralyze you. A lot of newbie traders go in to the markets and trade time after time thinking they'll finally hit the right trade and end up blowing out their account. And lastly, you need to be able to handle the emotional aspects of trading. To be honest, most people out there are just not simply cut out to be full time traders. It takes a lot of work and dedication. It's a stressful FULL TIME job in itself. Brett Steenbarger's blog has a lot about newbie traders and their chances of success; it would be my top resource to check that stuff out; he can explain it a lot better than me.
He is one of my favourite trading resources, he's often quoted in the psychology section of T2W. Here's a link to his articles sections; worth finding time to read one a day IMHO, or perhaps one a week...

Changing Your Self Talk By Talking to Yourself

Brett N. Steenbarger, Ph.D.

www.brettsteenbarger.com


From the time we become self aware, we conduct an internal dialogue. We question ourselves, berate ourselves, congratulate ourselves, and make plans for ourselves. As I emphasized in my book, our self talk represents the "I" speaking to the "me". Just as we have relationships with others, our self talk is a manifestation of our relationship to ourselves.

I often ask traders to conduct their self-talk out loud. Sometimes we even record it. The playbacks are eye-opening. That's when we hear what we sound like when we talk to ourselves. Is the talk friendly and supportive? Is it angry and perfectionistic? Is it abusive? Is it constructive? When we hear our internal dialogue, we lay bare our self esteem: how we truly feel about ourselves and how we actually treat ourselves in this relationship between "I" and "me".

A cornerstone of cognitive approaches to change is that, to change the way we feel and act, we need to change how we process information. Much of our self talk occurs automatically, without our even being aware that it is occurring. When we keep a cognitive journal, we are making the internal dialogue explicit: writing it down so that we can be aware of it and gain some distance from it. Change begins, I find, when people recognize their self talk in real time and come to the realization: "This isn't how I want to talk to myself!"

This is especially relevant to trading. How we talk to ourselves about a trade will affect how we manage that trade. When we "lose discipline" and fail to adhere to a trade plan, it's often because the information processing we engaged in to develop the trade idea has been hijacked by a very different kind of self talk during the trade.

Here's a very simple method to alter our patterns of self talk:

Recall our visit to the expert trader Marc Greenspoon. Marc keeps with him a pocket recorder for dictation. He talks to himself through the recorder, reviewing his performance. In many of the tapes, Marc sounds like a coach talking to a player. He is both critical and motivating. His tone is no-nonsense, and he hones in on what he needs to do to improve his trading. Most important of all, Marc uses the taping to achieve a certain level of emotion and motivation. Like a half-time talk from a coach, Marc's talks to himself help him sustain the alert information processing that he needs for his kind of trading.

I believe Marc's technique--talking to himself as a way of rehearsing desirable self talk--has a great deal of promise, not just at the end of a trading day, but at the start and the middle as well. The key rule when doing the taping is to not stop the tape until you have truly hit an emotional level that represents the kind of relationship you want to have with yourself.

A major shortcoming of written journals is that they can be emotionally sterile. They don't shift us into different ways of processing information and relating to ourselves. The best way to change our self talk might just be to practice talking with ourselves. We're always going to have a relationship with ourselves. The only question is whether or not that relationship is within our conscious control. Taking the time to consciously talk to ourselves is a great way of making our self talk conscious.


http://www.brettsteenbarger.com/articles.htm
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Old Nov 24, 2009, 7:34pm   #13
 
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It takes 10,000 hours to become an expert in any field.
Most peoples trading capital doesn't last that long.

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Old Nov 24, 2009, 11:00pm   #14
 
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Julian is spot on; you have to learn by observation first. Patience is one of the strongest things you need to learn, because unless you have the partience to study the markets, the methods, strategies, and comments - in forums such as this, you'll get wiped out very easily.

I started spread betting 4 years ago, followed some poor advice, got flawed, picked myself up (psychologically) studied, discovered a couple of systems I liked ("teach a man to fish..." type systems). Now I'm working at building up a decent sized budget with which to trade again. I think risk-management was one of the biggest things I learned

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Old Nov 24, 2009, 11:55pm   #15
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Originally Posted by Black Swan View Post
30% annual return on £100K trading capital employed is pitiful quite frankly.
Have you got £100k trading capital, and have you made more than 30% on it? If your answer is no to the first part then you've got no grounds saying that's 'pitiful'. Who's to say that person won't make 100% the next year? I'd be interested what returns you think you're capable of and what you'd be happy with?
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