Why do so many traders lose money?

meanreversion · Jul 30, 2009

(This thread is meant to be thought provoking and to generate debate. It is in no way a pre-supposition that people reading this are consistently losing money when trading.)

Ok, here goes. Anyone can devise a random set of trading rules and then backtest them. Some systems may be profitable in the past and then become unprofitable in the future, or vice versa. In other words, any system will make money at some point - no system always, consistently loses money forever (because if it did, the exact opposite system would always make money, and that doesn't exist).

The statistic I hear is that 90 pct of traders lose money. Ok, if that is true, what are they all CONSISTENTLY doing that causes them to lose money (ignore commissions and bid/ask).

Are there basic human traits that cause people to trade poorly? If so, can they be specifically identified, and thus all that is then needed is to avoid making these mistakes? For example, could you tell a rookie trader "don't do x, y and z" and that would ensure they go on to be profitable over time?

I have my own thoughts on where things go wrong, but am interested to hear others peoples ideas.

squall321 · Jul 30, 2009

meanreversion said:
Are there basic human traits that cause people to trade poorly?

greed and fear?

Jason101 · Jul 30, 2009

cloud321 said:
greed and fear?

Yup

Masquerade · Jul 30, 2009

They don't have the balls to do what they know is right.

ian23 · Jul 30, 2009

Failing to stick to targets set before a trade is made. Many reasons for this like fear and greed but also things like the need to be right or desperation.

Charlton · Jul 30, 2009

cloud321 said:
greed and fear?

And price levels, price and volume patterns at which greed and fear are likely to occur are known and manipulated by the remaining 10%-20%

Charlton

Black Swan · Jul 30, 2009

because they're not traders, they're simply part time fantasists.

tenbobtrader · Jul 30, 2009

not prepared

not prepared

not prepared

put what you like after not prepared, makes no difference

Andy

mrsoul · Jul 30, 2009

meanreversion said:
(This thread is meant to be thought provoking and to generate debate. It is in no way a pre-supposition that people reading this are consistently losing money when trading.)

Ok, here goes. Anyone can devise a random set of trading rules and then backtest them. Some systems may be profitable in the past and then become unprofitable in the future, or vice versa. In other words, any system will make money at some point - no system always, consistently loses money forever (because if it did, the exact opposite system would always make money, and that doesn't exist).

The statistic I hear is that 90 pct of traders lose money. Ok, if that is true, what are they all CONSISTENTLY doing that causes them to lose money (ignore commissions and bid/ask).

Are there basic human traits that cause people to trade poorly? If so, can they be specifically identified, and thus all that is then needed is to avoid making these mistakes? For example, could you tell a rookie trader "don't do x, y and z" and that would ensure they go on to be profitable over time?

I have my own thoughts on where things go wrong, but am interested to hear others peoples ideas.

The real reason why so many traders lose all their money is because they have not found anything that works consistently- it's just that simple.
Either you will find something that works consistently or you will lose all your money- those are the only 2 options.
If you don't have something that works consistently, trading is like flipping coins and we all know that you can't make money flipping coins.

-Take Whichever Way Works-
Bruce Lee
Jeet Kon Do

N Rothschild · Jul 30, 2009

pfft, people listing reasons like fear, greed, not prepared etc...baloney! they simply CANT trade. what more of an explanation do you need than that?

tenbobtrader · Jul 30, 2009

N Rothschild said:
pfft, people listing reasons like fear, greed, not prepared etc...baloney! they simply CANT trade. what more of an explanation do you need than that?

thats killed the thread

you can"t just go posting the truth in the first couple of pages of a new thread

later

Andy

TAjammy · Jul 30, 2009

too young/arrogant/stupid/greedy/poor :smart:

nile_croc · Jul 31, 2009

1. Focusing on being right rather than making money-this is THE biggest one..everything else is just a derivative of this.
2. Listening to and trading based on other people's opinions, including the idiots in the financial press
3. Taking profits too soon, not taking losses quick enough.
4. Improper trade sizing-betting too much on one trade.
5. Forcing a trade when your setup isn't there, just because you want to feel involved and watch something.

itsbearabull · Jul 31, 2009

mainly due to lack of discipline, ignorance and their inability to control their emotions, such as fear, hope, greed. people often abandon their trading rules, if they even have any, when they're losing and they wait for it to go back up so that they can get even. many times it doesnt go back up and they suffer a great loss. trading is all about great discipline, being able to control yourself so that you're not just gambling.

TradingApples · Jul 31, 2009

Because they think what applies to the real world also applies to the trading world.

arabianights · Jul 31, 2009

meanreversion said:
(This thread is meant to be thought provoking and to generate debate. It is in no way a pre-supposition that people reading this are consistently losing money when trading.)

Ok, here goes. Anyone can devise a random set of trading rules and then backtest them. Some systems may be profitable in the past and then become unprofitable in the future, or vice versa. In other words, any system will make money at some point - no system always, consistently loses money forever (because if it did, the exact opposite system would always make money, and that doesn't exist).

The statistic I hear is that 90 pct of traders lose money. Ok, if that is true, what are they all CONSISTENTLY doing that causes them to lose money (ignore commissions and bid/ask).

Are there basic human traits that cause people to trade poorly? If so, can they be specifically identified, and thus all that is then needed is to avoid making these mistakes? For example, could you tell a rookie trader "don't do x, y and z" and that would ensure they go on to be profitable over time?

I have my own thoughts on where things go wrong, but am interested to hear others peoples ideas.

because they're paying transaction costs to trade noise

simple as that

ffs

Splitlink · Jul 31, 2009

Because their real risk/reward ratio is negative ie. they hang on to a lossmaking trade, hoping for it to reverse and, if it does (rarely), they sell too soon.

Black Swan · Jul 31, 2009

arabianights said:
because they're paying transaction costs to trade noise

simple as that
ffs

Quality statement, hat doffed.

cuotes · Jul 31, 2009

nile_croc said:
5. Forcing a trade when your setup isn't there, just because you want to feel involved and watch something.

Such a huge truth

Technically Fundamental · Jul 31, 2009

I find it's more thinking that I should be involved and the set-up is not there because I'm not good enough. Other people are trading (so says the chart) so why aren't I?

Why do so many traders lose money?

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