Mistakes Loss Making Traders Do on Regular Basis

Recently, a couple people I know packed up and quit trading after struggling for a long time to hold their heads above water. They didn’t make it. This isn’t unusual of course – this profession has a high failure rate – but it frustrated me.

It frustrated me because I could see potential in them. I don’t believe you have to be particularly talented or intelligent to be a successful trader, but they seemed to have a grasp on the market and the necessary love of trading. They had the tools, they had the knowledge, they had the time, and they had the funds. It also frustrated me because I could see the pressure they were under that contributed to their failures. Most of all though, it frustrated me because I could clearly see what they were doing wrong, but they just couldn’t stop from making the same mistakes over and over.

This happens a lot. I see a lot of people making the same exact mistakes. So I thought I would share my list of the seven most frustrating things that struggling traders do…

 

It frustrates me when people will not do their own homework.

Too many people want to make money, but aren’t willing to put the time in and do what it takes. I love answering questions, and I have a passion to help people learn, but when I notice someone asking the same questions over and over, and they are basic questions that anyone could google if they gave it 30 second’s effort, I know they are lazy and probably won’t make it.

You want to know what makes a successful trader? They glue their butts to the chair. Take a look at their computer desks, and you will probably see a lot of coffee rings and crumbs. You only get out of something, what you put into it. If you are not willing to take notes, take some initiative, keep a journal, and spend a lot of time watching stocks, I don’t see much hope for you as a trader.

 

It frustrates me when people can not explain their reasoning for a trade.

If your reason for entering a trade is something vague like, “I thought I saw buyers, and last week it had news, and I dunno, it just looked good”, then you don’t belong in that trade! People like this usually have no clearly conceived, written, organized trading strategy, because they are lazy. And they are doomed to failure.

If you have no solid reason for a trade, you will not have confidence in that trade. You will wind up mis-timing, mis-judging, fumbling, and losing.
”I think the most important thing to do is to develop a system that you have confidence in. You will get nowhere if you are second-guessing what you are doing. When the market is open, you need to know what you are doing, and why you are doing it, without thinking too much about it. If you start thinking too much about what you are doing or second-guessing yourself, you will quickly get taken out of the game.”

Believe it or not, it doesn’t really matter that much what your reason is exactly, as long as you are consistent with that reasoning. But you better have a reason!

 

It frustrates me when people make things more complicated than they need to be.

Let me give you an example. After extensive testing for over a year, I developed  a new trading system he had developed. The system works, just as it is. It is not perfect (no trading system will be 100%), but it is highly profitable. What was interesting though, were people’s initial reactions. Instead of saying, “Wow great, let me give it a try”, many people’s first response was, “I wonder if it would work even better if we changed this and that, and instead of a 15 moving average we used a 10 moving average, and on and on. Before they even tried or understood the system, before ever becoming profitable and successful with it, they immediately set about trying to improve it.

Maybe its human nature. We love to try to reinvent the wheel. Many of us see trading as a puzzle. If we could just find that solution or formula that no one else has thought of yet, we would be rich and happy and trading at 100%. A lot of people think that the more indicators they pile on, the better their trading results will be. So they wind up with analysis paralysis, unprofitable and frustrated, convinced that trading is an unwinnable gamble.

I can’t say this enough. Its really not the system itself, but rather what you do with the system – your discipline to use it and keep stops. You are not going to find a system that works 100% of the time, so you had better limit those losses; because 2% of your trades can easily wipe out 98% of your gains if you cant keep stops. The KISS system is usually the best!It frustrates me when people enter a trade for a good reason, and then lose their nerve and exit too soon.

This is a lot like walking across a log over a river. If you keep focused on your goal, you will get to the other side. You know how to walk a straight line, and if the log was on the ground you would have no problems. But once you are out there, if you start second-guessing yourself and looking down at the rocks below, you are going to fall. Too often emotions set in and sabotage good trades.

If you have a reason, stick with it! Stay in the trade until your target is reached, you have an exit signal, or the reason for your entry is no longer valid.

 

It frustrates me when I see people hesitate, or follow others, and enter a trade too late.

I understand their lack of confidence and I can empathize because I have been there, but if they don’t get a grip on it, that will be their downfall. Calls are great, and gurus are great, but if you follow, you will always be late. You need to learn to rely on your own reasoning, or you are going to be too slow and wind up fish bait.

Often this is simply inexperience, and that will take care of itself with time. That is the reason I recommend starting out with small shares until you gain a confidence in your system and your ability to keep stops. But a lot of times this problem has to do with deeper emotions, pressures and self-esteem problems that may not go away that easily.

This is hard stuff because its all about confidence. When you are on the brink of going under the 25K day trading limit, or under pressure from your spouse who disapproves of your trading, or under pressure to pay bills, etc., you are working under an enormous amount of fear and pressure. And that is automatically going to cause hesitation. That is a hard situation, I know.

But I am telling you, if you don’t get that under control and learn to trade like you don’t need the money, with control and system, leaving out the emotion and fear, you are not going to make it. You need to find a way to let some of that pressure go. Get a part-time job if things are that rough and you still believe trading is the job for you. If you cut back and trade a couple days a week without the pressure, you will very likely trade better for it and wind up making more money than you did trading 5 days a week under pressure. I have seen it happen many times.

 

It frustrates me when people will not contemplate the real reasons for their failures.

I don’t know how many times I have heard “The market was tough today. I had one good early trade and then gave it all back in the afternoon in a few bad trades.” Let’s be honest here. It wasn’t the market making you do those stupid later trades – it was you. Don’t blame it on the market, when in reality you were chasing longs all day when the market was tanking.

Then they will say something like, “I need help with risk management”, or “I need help learning to find good entries;” or “I need help learning executions“, or some other topic not really related to their true mistake. When actually what they need is a dose of self-restraint and some personal accountability. They need to stop making trades out or boredom or frustration or regret or any other reason other than, “it met my trading criteria”. They also need to be honest about that criteria and not stretch things into “well.. it kind of meets my criteria.. if I look at it cross-eyed.”

And this is hard, I know. Its hard to sit here all day and stare at these numbers, especially when things are slow and there have been no good trading opportunities that day. Its like fishing. Fishing can he really boring. But if you aren’t sitting there waiting, with your hook in the water, you wont catch anything when the big fish come by. And its not going to help anything if you jump into the water every time you see a ripple, trying to convince yourself you had a bite.It frustrates me to see a defeatist attitude, especially in myself.

The potential in our lives far exceeds what we ordinarily imagine. Too often we put limitations on ourselves . We say, “I can’t do this,” or “I am just not smart enough”, or “I am just unlucky”, and in doing that, we fail to challenge ourselves and develop new potentials, because we have lost faith in ourselves.

We are like circus elephants tied with small weak chains to a stake, believing we could never get free, unaware of our own strength. We inherently possess tremendous potential, but if we develop the bad habit of convincing ourselves that our potential is limited, we will not actively challenge ourselves and grow. Like the elephant, we will be held captive by our own beliefs. If you have a defeatist attitude, you have already lost. So lets keep a positive mind-set, and try to see each mistake as a stepping stone to growth.