My guess as to why traders fail

[shark]

Quote from billyjoerob:

I suspect most failed traders attempt some kind of reversion to the mean strategy . . . shorting tops and buying bottoms, whether on five minute charts or long term. If you ever followed the Ameritrade Index, the Ameritraders bot weakness and sold strength. What many people think is the smart strategy -- buying weakness -- is in fact the strategy of nearly every retail trader. If you look at academic studies, traders tend to sell winners to fund losers and buy weak stocks that are in the news. They will buy winners, but only when it looks like a "sure thing" -- it been going up every single day and won't go down. Look at SIRI at the end of 2004, and look at the volume - that was a true small trader frenzy. On one day, 95% of all Ameritrade trades were in SIRI. If you can do just two things - buy strength and use risk management, ie stops - you will do better than 99% of traders.

I have to agree, nearly every noob strategy i've seen involves reversion to the mean. Traders naturally decide something is too high or too low, and expect it to return to the middle range.

You guys i'm sure there's a multitude of reasons why traders fail, but has anyone ever dealt with the problem i presented in the first post? (too much information in the market, impossible to keep track)

 

[duhmentor]

Quote from billyjoerob:

Discipline is not enough, nor is having a plan and following it sufficient -- there are plenty of bad plans out there.

Ok how about having a SMART Plan
Specific
Measurable
Aligned
Realistic
Trackable

 

[duhmentor]

Quote from shark:


but has anyone ever dealt with the problem i presented in the first post? (too much information in the market, impossible to keep track)

A red herring that has nothing to do with trading.

You don't trade information. You trade peoples perception of that information.

 

[lescor]

Quote from shark:

You guys i'm sure there's a multitude of reasons why traders fail, but has anyone ever dealt with the problem i presented in the first post? (too much information in the market, impossible to keep track)

The news isn't important. How the market reacts to it is what matters. In other words, don't try to figure out what the market will do. Just react to what it does do.

 

[shark]

Quote from duhmentor:

A red herring that has nothing to do with trading.

You don't trade information. You trade peoples perception of that information.

Aha yes but this is difficult when, at the same time, you have to take into account people's perception of:

1. a consumer sentiment report

2. house sales numbers

3. Terrorist attack in russia

4. Nuclear threat from north korea

5. Fed proposing new regulation

and a whole bunch of other things. I'd imagine amateur traders just looking at the consumer sentiment and house sales, thinking "hurr durr good numbers, stock markets gonna go up" and immediately getting B3asted by the market. It's possible to hedge most of these factors away but they don't know that.

 

[jack hershey]

My vote goes for using the leading indicator of price, >>>>>volume.

This yields nested fractals of one pattern through deduction.

 

[duhmentor]

Quote from shark:

Aha yes but this is difficult when, at the same time, you have to take into account people's perception of:

1. a consumer sentiment report

2. house sales numbers

3. Terrorist attack in russia

4. Nuclear threat from north korea

5. Fed proposing new regulation

and a whole bunch of other things. I'd imagine amateur traders just looking at the consumer sentiment and house sales, thinking "hurr durr good numbers, stock markets gonna go up" and immediately getting B3asted by the market. It's possible to hedge most of these factors away but they don't know that.

Or you can look at a chart and see what the market is doing.

 

[schizo]

Quote from shark:

I'm thinking that the high failure rate among retail traders can largely be attributed to the following.

-There is so much going on in the world at any given moment, that it becomes impossible to keep up with it. There is literally more news coming out at any given minute than one could even hope to read. The news doesn't even need to be relevant to have an effect. Nearly anything can have an effect on market sentiment. This makes otherwise clear market trends look like random nonsense.

Price action trading seems simple enough until one has to take into account the 500 different things that just happened in the span of 15 minutes.

It appears very important to reduce the number of variables that affect an asset's price. Hopefully someone else has tackled this problem. I just don't want some random irrelevant bullshit from South Korea or whatever to give me a hard time.

Thanks.

I didn't bother to read the entire thread so my apology if I'm merely regurgitatating what's already been said.

First, turn off CNBC and the newswire. Unless your primary objective is to trade momentum stocks based on news (earnings, lawsuits, FDA approval and the like), they will do more harm than good.

Second, 500 different things? Well, put on a damn blinder and focus only on those that matters to you like higher high or lower low.

Third, you write like a noob, you sound like a noob and you will fail like a noob whom you deride if you don't get your act together.

PS. South Korea? Who the hell cares. The damn news was ALREADY PRICED INTO THE CHART last week. Nobody knew why the futures took a dive within a matter of 10 minutes. It was only later when it became clear. Ya see, by the time you and I get the news, it's already over and done with.

 

[shark]

Quote from duhmentor:

Or you can look at a chart and see what the market is doing.

But you won't have a clue why it's doing what it's doing, and therefore will be in the dark regarding whatever may happen in the world.

 

[duhmentor]

Quote from shark:

But you won't have a clue why it's doing what it's doing, and therefore will be in the dark regarding whatever may happen in the world.

I don't care why the market is moving just that it is and I can react to it.