Why traders lose!!
I have taught many people how to daytrade over the years. Many have done extremely well and some who have not done so well. I think I can en capsulate in a few paragraphs why people lose.
Daytrading is a tough business. It requires a non emotional approach, discipline and the courage to stick with that discipline.
Here is what I have seen over the years from some of my students and other daytraders who have failed.
Students will learn a disciplined approach, learn how to follow predetermined entry and exit points and remove the emotion from their decisions.
They are taught that the market changes and you must change with it, what worked today will not necessarily work tomorrow.
They are taught to recognize which patterns work and which ones don't work and to paper trade patterns until they start to work.
They are taught how to identify intra-day tops and bottoms.
They are taught to wait for only the high percentage trades only and not mess with the low percentage trades just because everyone else is doing them.
They are taught to NOT trade just for the sake of trading but to trade only when the indications point to a high percentage probability of success.
If you think about it, this is a pretty good approach to daytrading. IF you stick to such a plan, you have just increased your percentages by a huge amount. Your logical mind must accept that fact.......
They follow all these rules and start to make some very good profits. They start to think the whole process is easy and start to count the millions in their heads. The plan is working as advertised...
AND THEN.... something goes wrong.
A trade goes against you due to a slow broker and you get stuck in a trade....
You feel panicky and feel you must "MAKE UP THE LOSS" on the next trade so you jump on something not quite so "high percentage" and lose more money...
or
You "have a feeling" about this stock and you disregard your exit points and it enters a death spiral...."death by slow pinprick" and now this stock becomes one of your "hold till you at least break even" stocks.
or
You break the rules once and get away with it.. You may even make a huge profit by doing so. You decide to break the rules again and not exit a trade without emotion and it blows past your stops. You "think" it will bounce because it did the last time, and the pattern is exactly the same.... Now you become an investor in that stock and lose all discipline.....
or
You get stuck in the herd mentality. You wander into a chat room, see what seems like EVERYBODY in there claiming that they are making a killing. They must be because everyone seems to be posting items like this...
"hey just bought 2000 shares of XYZ for 11 1/4 and sold it for 13 1/2 for a 2 1/4 profit" :)
Everyone congratulates them on a GREAT play and then wonders why the heck they don't make such good profits. What they don't realize is, this may or may not be true and even if true, these people don't post ALL the losses they take in between some of their good trades. Nor are the trades called in real time... only time late trades, or after the fact...
SO they start following all these plays and join in the herd when people shout... "buying XYZ" completely disregarding ALL THE LESSONS AND RULES that they learned. No entry points, no pre-determined exit points. This trade is strictly an emotional play, following the croud. You know how most of these end......... and before you know it your 40K portfolio is down by half and you are considering going back to your day job......
or even worse....
You were never trained on proper daytrading techniques, you jump in the fray without paper trading first and watch the market makers take you "downtown to the cleaners"...............
I could go on and on... but bottom line is..
Learn a plan. Learn how to trade unemotional and let the stock action determine your entry points and your predetermined stop to determine your exit points not your gut feeling. Learn WHY you are doing a trade, and don't just do it because everyone else is doing it, because most likely, those folks will be back at their day jobs sooner than you think. Don't do trades just for the sake of trading or lack of good trades. Wait for the high percentage trades only. Paper trade patterns till you prove that they work and are high percentage plays.
Here is the key to success in daytrading in one simple sentence....
Trade with DISCIPLINE and have the COURAGE to stick with that discipline no matter what happens!!
Off my soap box for now :)
Cheers
Ken
mtrader.com |
