“The trading profession has a problem that is two-fold: There is a low bar for entry and a high bar for success.”
I’m probably not going to make a lot of friends with this post.
This is hard to say and it many ways even harder to accept but most would be traders who enter into the world of trading have already failed long before they ever begin.
The skills, attitudes, mindsets, and beliefs that most would be traders bring to trading is ultimately inadequate to create sustained success.
I’ve compiled the 12 reasons the most common reasons I see traders fail – and how we can turnaround these losing traits.
1. Not having a vision
Ask yourself how do you envision trading fitting into your life? Too many traders approach trading from the opposite side of the spectrum, “how will my life fit around trading?”.
If you want to quit the rat race to become a trader so you can spend more time with friends and family, then wind up spending all your days trading and nights thinking about trading has anything changed?
Ultimately your trading needs to align with the lifestyle you want to live and just as important your personality.
So start with the end in mind.
2. Lack of persistence
“The path to hell is littered with good intentions.”
Not only is this reflected in the willingness and eagerness to quit at the first sign of defeat but also the unwillingness to do what is necessary to be successful.
- “I didn’t have time to journal my trades today; I’ll do it at the end of the week.”
- “I have this great idea for a new setup – one day i’ll get around to backtesting it”
- “I’ve been meaning to create a trade plan but haven’t gotten around to it”
Here’s the thing – good intentions without follow through is just daydreaming.
[Tweet “Good intentions without follow through is just daydreaming.”]
Re-examine your trading goals. Are your goals truly inspiring and worthwhile? Is there a way to tie the goal to your deeper values?
Now renew your commitment to your goal and find someone who can hold you accountable.
Rarely in trading is ignorance bliss. In fact it’s usually the opposite.
Whether this comes in the form of not understanding the fundamentals of the company or financial instruments we’re investing in, not understanding the level of risk we’re taking on, not having proper expectations, all of these are manifestations of ignorance.
In the short run due to randomness or chance one may find oneself on the right side of a trade however over the long run ignorance sets the stage for ruin.
It takes a certain level of honesty and humility to admit but sometimes you need to search outside of your comfort zone to acquire answers and guidance.
This is especially true in a solitary effort like trading – recognize that there are others who have overcome the same difficulties.
“When the student is ready the teacher will appear”.
Read, engage with other traders outside your immediate circle, seek coaching or mentoring.
4. Lack of self awareness
The lack of self awareness causes us to to mis-judge our true strengths and weaknesses.
The effect of this is that we create and perpetuate a cloud of self doubt as we move from tip to tip, fix to fix without ever addressing the main obstacles – ourselves.
Self awareness can be cultivated by building a practice around embracing what is now.
Start a journal, begin to notice throughout the day how you feel. How do you react to a trading loss? How do you react to a windfall? Do you have a fear of missing out?
Again none of this is good or bad – it just is. You are cultivating a deeper understanding of who you are.
5. Self delusion
“I stopped fighting reality a long time ago, it kept winning”
Traders as a group lie to themselves all the time. Perhaps the only other group of professionals so inclined to carry on self delusion on this scale would be professional sales people.
I get it, with a failure rate of 90% how many traders really want to accept the cold hard truth that our trading results are not where they want them to be. Easier to believe we are grander or greater than accept what really is.
6. Victimhood mentality
Stop being a victim. – It doesn’t pay to be a financial martyr.
[Tweet “It doesn’t pay to be a financial martyr.”]
If you are blaming Goldman Sachs, the algos, the government, for your lack of success you are thinking like a victim.
But you may argue, it’s not a conspiracy, the actions of these conspirators are affecting the markets and creating an unfair playing field.
Now all these factors may be true but ask yourself how does this truly serve you?
It may feel good to complain about how the market markers low ticked you on your last trade, or how the algos have changed the nature of the markets, after all misery loves company.
But there will always be things that are beyond our control but successful traders operate from the belief that they are ultimately responsible for the results of their trading.
Wrestle back personal responsibility and operate from the belief that the locus of control falls squarely on your shoulders.
7. Lack of meaning
Trading can be a brutally hard way to make easy money.
[Tweet “Trading can be a brutally hard way to make easy money. “]
As a profession, trading has more ups and downs than most.
The virtuous cycle of making and losing money can shake the dedication of even the most committed.
After a time making money for the sake of making money becomes hollow and unfulfilling.
So what can you tap into that is deeper or more fulfilling?
Start with Legacy.
After all is said and done what do you want to leave behind from your trading? Who will you need to become to be able to achieve this?
If you can start from this place you will find a guiding sense of motivation that will enable you to sustain the necessary high levels of performance.
8. Wishing instead of taking action
Over the years I’ve met my share of traders who like the idea of becoming a trader but never seem to take any meaningful action.
It’s like they’ve bought into the lifestyle but not the hard work necessary to become successful.
We’ve already spoken about the need for a Vision and Meaning so now all that’s left is action.
Aside from having a trade plan, what is your development plan?
And no simply trading and staring at a screen is not enough.
What kind of learning plan and milestones have you put in place to improve your core competencies and address any weaknesses?
9. Lack of focus
The science is in – human beings cannot multitask.
Are you constantly distracted? Are your trade screens littered with indicators? Does your attention get pulled from the incessant notifications coming from your iPhone, to your tablet, to your multiple trading screens, to the TV in the corner of the room.
Here’s the thing, we’ve all heard about practice being perfect – in this case what you’re practicing is you’re practicing being distracted.
Practice being focused.
Shutdown, turn off, or put away everything that is not essential to your trading.
Take out a piece of paper, and make an inventory every single window on your trade screens – do you absolutely need it?
Now do the same very every single technical indicator on your trading screens.
Now I challenge you to to remove 1 item.
Practice being focused for 21 days and tell me it doesn’t make a difference in your trading.
The quickest way to failure in trading is to tie self worth to net worth.
[Tweet “The quickest way to failure in trading is to tie self worth to net worth.”]
As it pertains to money there is no other area in life where I have seen people compromise their values as quickly as when it relates to money.
The reason is that so many of us have made the critical mistake of tying our self worth to our net worth.
Hence any attack on our net worth is perceived as an attack on the self, and most people will do almost anything to avoid this visceral discomfort.
As it pertains to trading, if you walk into trading with scarcity this will be exactly what will be reflected back to you based on your actions.
Do you feel like you do need to trade to make money? Are you trying to make something happen when no opportunities exist?
Decouple the mindset of scarcity before it contaminates your trading.
11. Having a lottery mentality
“The harder the conflict, the more glorious the triumph. What we obtain too cheap, we esteem too lightly.”
– Thomas Paine
The reason it doesn’t work is the same reason why so many who win lotteries lose all that windfall money or remain poor.
He’s so poor all he has is money
[Tweet ““He’s so poor all he has is money”.”]
Now unlike the individual who has lucked into money, the person who has earned and created a fortune through their own efforts not only has the know how to go out and create it again but more importantly the belief (s)he can do it again.
Learn to love the struggle.
The greater the ego you bring to the market – the greater the size of humble pie you’ll be served.
This was, and continues to be, my most difficult lesson to learn.
Outside of trading, life often rewards those with strong beliefs and the convictions to hold them however in trading it’s the opposite.
“Have strong convictions, but hold on to them loosely”.
Remember trading is not about being right.
As traders we make money when we have a system with a positive expectancy which we are able to execute consistently over the long term.
If you care more about being right than making money then consider a career as an analyst.
So which of these reasons strike home for you?
Now what are you going to do to turn it around?