Don’t Become A Statistic: 10 Reasons Why Traders And Investors Fail
Spend some time with a seasoned trader, and he or she will tell you: there are just some things a trader or investor shouldn't do. That's right - y...
Spend some time with a seasoned trader, and he or she will tell you: there are just some things a trader or investor shouldn’t do.
That’s right – you may know a trader or investor who has made these mistakes and become the “statistic”: a recent study found that over 82% of traders made significant losses and closed their accounts after 9 months. For the long term investors it is slightly better, but that doesn’t account for the thousands of retiree who had to return to work after the 2008 bear market.
That’s why I’ve made a list of 10 major reasons why traders and investors fail in the markets. How can you use this? It’s simple – do the opposite of everything on this list, then click the link at the bottom for even more reasons and things to avoid. When you know what to avoid – you can be far better prepared.
Ready? Let’s get started!
1: They don’t have a trading plan. It is such a seemingly simple thing – list your rules, your money management, and yet hardly any new investors take the time to do it. Needless to say, they’re usually the ones who go bust.
2: They don’t use Stop Losses. All of the old traders and investors I know who have traded through crashes and recessions swear by one main thing – a place where they absolutely will get out of the market, also known as a stop loss. Make sure you know yours.
3: They haven’t got tested rules for entry and exit. Would you fire a nuclear missile randomly into the air? Of course not! Someone could get hurt! It’s the same with trading – find rules that work, rules that you have tested. Don’t just buy or sell randomly or you will get hurt.
4: They think a stock will always go up over the long term. Many stock brokers or financial planners will have a large chart of the ASX or Dow Jones over 100 years. And it heads upwards. But what they don’t tell you is the market went sideways for 20 full years between 1960 and 1980, or that many stocks simply go bust and disappear. Babcock and Brown and Sons of Gwalia come to mind, but there are many more that have fallen deeply and just linger there, refusing to die.
5: They have a plan, but they don’t follow it. So they have done the research, they’ve tested their theories, but when they actually put money in the market they break all of their rules!
6: They aren’t prepared for a string of losses. Mathematicians will tell you that even if your win percentage is 70%, probability states that you could still have a run of 10 losses in a row. And if you are investing for a long time, you will experience this in your lifetime. Be ready when it comes, and stick to your trading plan.
7: They listen to the news. Everybody loves gossip, and traders and investors are no exception. The only trouble is when it comes to the news: they are reporters, not investors! They don’t actually know what the blazers is going on! So they make something up, like “hedge funds are short selling” or “investors are running to safe-haven assets”. If you want gossip, listen to the news. If you want trading wins, get a solid system.
8: They don’t watch the trend. Some of my best friends are extremely successful fundamental investors. But even the most successful fundamentalists lost money in 2008 (and some of the best fund managers got absolutely hammered), because they didn’t keep an eye on the trend. The stock market will lead the overall economy by approximately six months, so watch for a trend to emerge regardless of company balance sheets.
9: They pay too much in brokerage. Brokerage can have a devastating effect on a small account. If you are using a full service broker at around $60 one way, making 50 trades a year will cost you $5,000. This is a big drag on your account, especially when you are trying to use compounding to grow it faster. Larger accounts are not so bad, but it still pays to be aware of this pit fall.
10: They hound people for tips instead of learning the ropes. How people love tips! Some people will do anything for a “hot tip” in the market. But it’s usually at the expense of actually learning the ropes themselves. And if you buy using someone else’s tip, when do you sell?
For 31 MORE reasons visit Dave McLachlan’s free site at . It could save you!
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