The reason why more than 90% traders lose is because trading is simple and yet complex at the same time--just like a card game.
Any newbie traders enter into the market could taste temporary victory by having luck on their side. I know some traders who donât use stop loss at all. They risk everything on every single trade until they blow up. Some of the less lucky traders discover the average down strategy to bring luck their way, but in the end, they found out that they were just delaying their bad luck, and have blew up their accounts.
Some of the more senior newbie trader became âexpertâ in technical analysis. They use combination of MA, Volume, RSI, Bollinger Bands to make their trade, but yet they still donât know why it works or why it doesnât. Whatâs worst is that some get into the Technical Analysis versus Fundamental Analysis mentality, and decided to dismiss everything related to fundamental, and use price alone.
Once they blow up their accounts, they then realized that trading is not for them.
Some of them may further their research and look more deeply into books like Reminiscences of a Stock Operator, and Market Wizards, but at this stage, they are still too new to trading to get anything meaningful from these books.
They started to get more serious about trading by âtreating it like a businessâ, but little did they know that the word, business, is referred to the gambling business. They are still too early at this stage to believe trading is gambling, and would probably argue with anyone all day to prove trading is not gambling.
They learn about risk control and started using stop loss. They now focus on money management which keep them in the game longer, but eventually they blow up their accounts, and realized that trading is not for them. Who would blame them? They have dedicated so much time and efforts into trading, and yet all they received in return are an onslaught of punishments. The normal peoples will get jobs and move on with their lives. Some of them became âtrading guruâ and started to teach others âhow to tradeâ.
The remaining masochistic traders learn more about stop loss. They read books like Trading in the Zone and The Secrets of Professional Turf Betting. They dig up their dust-covered math textbook on probability from high school. They now realized that trading is gambling. They try out this new acquired knowledge. Some blow up again and some decided that it will take too long to reach their financial goals.
The masochistic traders who continue this journey have graduated to the next level of Hell on Earth. They have acquired a solid understanding of strategies like average down and building pyramid, and they know the âwhyâ of various trading concepts. They looked back at their mistakes and realize how the vig and ATR may be the major contributors to their past failures. They are at this point in their mid to late 30s and are living with their parents.
Some started to incorporate statistical concept like correlation into their trade to diversify their risk, but yet they still trying to figure out the appropriate percentage of capital to risk per trade or per hypothesis. They donât have much capital anymore, but they are still trying.
Some realized that the edge is really in the bulls and bears.
to be continueâ¦â¦â¦.. (stay tuned)
