Why is Trading so Hard?

The stats we all hear and read state that 90 - 95% of all traders lose money.

How can this be?

Where do these stats come from?

If they are true then 5 - 10% of traders must be making a lot of money.

What are the factors that differentiate between the winning and losing traders?

Here's my list of winning attributes:

Well capitalized.
Understand money management.
Understand risk management.
Have documented their business and trading plan.
Emotional control.

Here's my list of losing attributes:

A need to be right.
Failure to take ownership of their decisions.
Trading as a hobby.
Addicted to gambling.

Obviously a lack of any of the strengths is a weakness as well.

What would you add to both lists?

When you look at these lists what attributes do you see in yourself?

For me the on the winning side it is patience, I find it hard to remain patient during the day as I want to catch every move.

On the losing side, it's the need to be right. This manifests itself in revenge trading, I can look back at my trading records and see a losing trade taken at say 9:15 and then I'm in again at 9:16 trying to prove I'm right and getting smacked again.

It's important to recognize your strengths and weaknesses and build safety nets into your trading plan to help you deal with the weaknesses.

Such as after X number of losing trades I must quit for the day. This is to force me to be patient as I know if I take another loser I'm done for the day. My trading plan also does not take very many trades in the day, I force myself to be patient and wait for a strong trend.

To mitigate my revenge trading I have rules on when I can re enter the market after a losing trade. I need to see a reversal of some of the technical indicators I watch and then have them come back to the trigger again.

If this doesn't happen and the move just keeps going, then it goes with out me.

Which I hate. :)

Cause it means I was right. :)

Of course I knew that. :)

Again, look at the 2 lists of attributes and if you can think of any I'm missing make a comment so I can have a look.



J the FX Wizard said...

"I am not capable of making predictions on the direction the market will take. Since I do not make a call on which the direction the market may move, I can neither be right nor wrong. A profitable trade is not an indication that I was right, nor is a stop loss an indication that I was wrong. It is for this reason that I must trade what I see and not what I think. here is no insult in a losing trade or compliment in a profitable trade. The only time that I can be proven wrong is when I make a trade based on a prediction of movement. I cannot be wrong if I trade by my predefined entry and exit rules, and therefore trading by the plan should not ever damage my self-confidence as a trader or have any other negative impact on my psychological state."

Today I stopped trading early because I "predicted" consolidation. Not taking a trade based on a prediction is the same as taking a trade based on a prediction.

That was the difference between a 5 pip and 100+ pip day.

I was wrong.

Solfest said...

So does that mean your plan needs to define how many trades you are prepared to take in a day?

Are you going to trade all signals, all day, every day?

If this question is not answered in your plan then the answer will be different every day depending on how the day is going.

For me all "issues" in trading come back to the fear greed complex.

You had some profit and the “fear” of losing it kept you from trading more.

If we have a string of losers going "greed" makes us take more trades to get it back.

As my blog sub title states, the daily struggle to reverse fear and greed trading crude oil, is the major psychological obstacle for me.

I'm guessing it is for all traders.

J the FX Wizard said...

I take all trades since I use Renko. The only way i get a lot of trades is with a lot of movement. I trade during certain hours. I am not allowed to change my plan in the middle of a trading day.

In all but one or two cases, I have always been better off to keep trading the plan as opposed to quitting early.

For me the greed sets in when I'm in winning trades. I want to take more and more trades. When I'm in a string of losers, I just want to stop. Usually I stop right before the winning trade that makes up for them.

Solfest said...

Then you are going to be rich my friend, Rich !!! Rich I say!!! (insert wild cackling laughter here)

Solfest said...

Hey wait a minute, does that mean I'm the only one who can't reverse fear and greed, the only one who's trading instincts are backwards?

Solfest said...

A man who likes rainwater suggested that emotional control was the key winning trader attribute.

I like that one, and I'm adding it to the list.

He also suggested that my blog sub title is very negative and I won't over come the stuggle until I change the words used to describe it.

I'm still thinking about that one.

Solfest said...

A wise man once said, "always use spell check".

The blog sub title was "The daily struggle to reverse fear and greed trading crude oil".

The new sub title is, "My daily commitment to reverse fear and greed trading crude oil".

How's that sound man who likes rainwater?

rr said...

I'm not saying it can't be overcome, can't is another negative.
I'm saying why associate a task with a negative belief.
A challenge is easier to deal with than a struggle.
imo, fear and greed should be eliminated not reversed, even if reversed your still trading off emotion.

Solfest said...

Eliminate fear and greed?

In my mind that means you can eliminate emotion.

Can that be done without brain surgery or medication? 

I'll stick to your control emotions mantra, as in reversing fear and greed means I am controlling it.

Making it work for me, not against me.


rr is the man who likes rainwater

rr said...

Why must there be fear and greed.

We have in our plan, money management and chart management, but usually not emotional management. When emotional management directly affects the ability to execute the other two.

Yes we are human and have emotion, but yes we are human and have the ability to manage that emotion, it maybe challenging but still is possible without surgery.

Manage or contain, is good, instead of eliminate.

Since discipline and focus cover fear and greed and help to execute a trading plan, when fear and greed doesn’t. Wouldn’t it be more positive to transfer the energy used on fear and greed and apply it to discipline and focus.

Solfest said...

Ok rr we are in the same book here, just using different language.

Why must there be fear and greed?

I don't know why, I just know there is.

“The speculator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you - you hope that every day will be the last day - and you lose more than you should had you not listened to hope - to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out - too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to gamble in stocks the way the average man does.”

Edwin Lefevre, Reminiscences of a Stock Operator.

“To follow the good principals and not let fear, greed, and hope interfere with your trading is tough. You’re swimming upstream against human nature.”

Richard Dennis

So yes we have to manage or contain these emotions and we do that with our plan. Money management, risk management, the whole plan is there because without it we are emotional trading idiots.

Where we will have to differ is how we acknowledge these human emotions.

I know I have them, and I am now "committed" to dealing with them rather than "struggling" with them.

Thanks to you.


rr said...

Bravo, Sol
When you change the way you look at things,
the things you look at change . . .

now to this "trading is hard" comment



Solfest said...

Ok rr, I think long and slow.

This blog sub title is of no consequence to the world. However to me it is the theme of what is basically my trading journal. So my brain kept mulling over our discussion.

I still stand with my fear and greed reversal description, but agree with your positive thinking mantra as well.

So for now at least, the sub title is this great quote from Shakespeare that sums up the whole, let’s do something we love, reason for me being here.

I call it the power of esoteric thinking.