Why is it that 90% or more of traders fail? I mean have we really asked this question. It is a baffling statistic.
I just finished Tom Hougaard's excellent book “best loser wins” and he talks extensively about this. He was able to get data on 25,000 traders, conducting over 1 million trades. He has said in his book and many other books I’ve read, that good trading goes against our human nature. Much of the mistakes that we make as traders can be traced back to our caveman days. It is hardwired in our DNA to avoid pain, to run away when we are in stressful situations, to avoid being harmed. So much of what we have to do demand that we go opposite of our 200,000 year old brain. So, we can really blame our ancestors, or our brain wiring if you will.
This is also help me to understand how I can know the right thing to do but don’t do it in my trading. I have come to handle that 100 times better than in the past but it’s definitely still a challenge. Why? Because I still have a 200,000-year-old brain. It is not easy to do the thing which feels uncomfortable, feels not right.
Like for example I can be profitable on a trade I can even be up 40 or 50% and don’t hit the exit button. Or be negative 30% and not exit, and see it go to -80% or -100%. That is my hardwiring kicking in, Greed and Fear. To exit means I may miss out of more profit. To take loss is to feel pain and admit I was wrong. Both go against my hard wiring and do not feel right to do.
So the real question is how do we overcome our hardwiring? Unfortunately it takes a lot of time and experience. Unfortunately it takes a whole lot of pain along the way. It sucks to go through hard times but I think that’s part of what has made me finally somewhat successful as a trader. And now we can use the computer to do that un-human activity for us. I set limit orders (bracket orders) to get me out and do the thing that is hard to do.
Anyway I would love to hear your thoughts on this? If you are baffled by your struggles as a trader, give yourself a break. You are human and that seems to be the issue.
