Why do traders fail: some random thoughts
- Thread starter 4DTrader
- Start date
I guess he meant you need to do homework. But different people have different interpretations.
OK, from the beginning, I mentioned I was going to focus on two behaviors: cut loss short and let profits run. I have explained that occasional to frequent rewards maintain the opposite behavior, which is to watch your loss widen. Human beings are living organisms and follow the same principles of positive reinforcement and negative reinforcement. Traders are no exceptions. If our bad behavior is rewarded, we will continue. Now you know why people rob a bank, because they get away with loads of money, immediately=they are rewarded. Will they do it again? You bet.
I use the word "immediately" because there is a delayed unpleasant outcome of a certain probability, and that is being caught by cops and sent to jail. In the mind of a bank robber, the delayed unpleasant outcome of jail time has less weight than the instant gratification of getting thousands of dollars. That leads to a trader's bad behavior: take profits too early.
Between instant gratification and delayed gratification of bigger magnitude, traders usually choose the former. In everyday language, we say "1 bird in hand is better than 3 birds in the bush." Many studies have been done on this topic and the results are the same: people choose something that is guaranteed, rather than something that they are not sure of, even though the latter is bigger/better.
If you see your trade goes in your direction, the temptation of taking profits is huge, especially a little pullback shows up. You certainly don't want to lose the bird in your hand, do you?
I just want to add some more points:
1. Don't overtrade!
2. The trend is your friend
3. Keep your trade simple
4. Don't trade when you are not in your state of mind
Those are just simple facts that traders tend to forget..
The reason there are so many failed traders(gamblers) on this site is directionally proportional to the amount of Psychological threads on the head of this site/ IMHO !
American pie:
A long, long week ago,
I can still remember how the market used to make me smile.
What I'd do when I had the chance
Is get myself a cash advance
And add another tech stock to the pile.
But Alan Greenspan made me shiver
With every speech that he delivered.
Bad news on the rate front;
Still I'd take one more punt -
I can't remember if I cried
When I heard about the CPI;
I lost my fortune and my pride
The day the NASDAQ died.
So bye bye to my piece of the pie;
Now I'm getting calls for margin
'Cause my cash account's dry;
It's just two weeks from a new all-time high
And now we're right back where we were in July,
We're right back where we were in July.
best in your trading
Kap
American pie:
A long, long week ago,
I can still remember how the market used to make me smile.
What I'd do when I had the chance
Is get myself a cash advance
And add another tech stock to the pile.
But Alan Greenspan made me shiver
With every speech that he delivered.
Bad news on the rate front;
Still I'd take one more punt -
I can't remember if I cried
When I heard about the CPI;
I lost my fortune and my pride
The day the NASDAQ died.
So bye bye to my piece of the pie;
Now I'm getting calls for margin
'Cause my cash account's dry;
It's just two weeks from a new all-time high
And now we're right back where we were in July,
We're right back where we were in July.
best in your trading
Kap
Superb!
In case anyone else likes it check out Kap's other masterpiece on the "How to learn price action thread" http://www.elitetrader.com/vb/misc.php?s=&action=bbcode....
Subscribers here by thousands float,
And jostle one another down,
Each paddling in his leaky boat,
And here they fish for gold and drown.
Now buried in the depths below,
Now mounted up to heaven again,
They reel and stagger to and fro,
At their wits' end, like drunken men.
Meantime, secure on Garraway cliffs,
A savage race, by shipwrecks fed,
Lie waiting for the foundered skiffs,
And strip the bodies of the dead.
Kap
