As per my personal experience the following are the most primary reasons for failure in trading - applicable to all types of new traders and all the markets. Well! this is not an exhaustive list but the most reasonable one.
🚩No Plan of Action
Trust me on this one, most traders fail to build a plan of action and fail. It is not only true for new traders but also to those who have been in this market for several years. Even if the latter have ever formulated such a plan, they would have never executed it with dedication. A couple of failures and all planning just vanishes in thin air.
The trader needs answer to the following questions:
What to trade?
How much to trade?
When to trade?
Why to trade?
Is it for intraday or swing trade?
How much is the risk?
Is risk tolerable?
Is risk reward ratio favorable in this trade?
Is the trade in the direction of primary trend or against it?
If he answers all these questions in advance, he will not have to regret after entering the trade. This would also bring confidence 🦾 in him.
🧐Tip Seekers
New entrants would always look for tips from friends, business channels, broker or paid service providers. I don’t want to get into how this tip system works but I have never seen any tip seeker to be a successful trader. Rather I have seen many traders who lost their entire capital, even before their paid subscription was over. The harsh truth is that there is no shortcut to success in trading. Even seasoned traders have to work hard for making money. So, learning 👨🎓 is the first step for novice traders to approach what they seek.
🤑Get Rich Quick Policy
Everyone wants to be rich overnight so that he doesn’t have to work for the rest of his life. This attracts traders to buy penny stocks. What is more attractive than anything, with these stocks, is the quantity that can be bought. A larger number of shares with the available capital. The other thing is profit potential. Buy at 2 and sell at 4, money doubled overnight. Unfortunately, that doesn’t happen very often. Traders buy such stocks for day trade or swing trade but then they keep it for years for one simple reason that these stocks never attracted large portfolios, for some valid reason. For such traders, investment in a sound company would have been a better option 😆
Another very popular instrument which lures traders and has the potential to destroy a trader’s capital at much faster pace is 'Options', especially weekly index options. I have seen people at broker’s floor loosing millions in just few minutes. New traders should stay away from Options and always start small, may be in cash segment.
🥵Overtrading
Overtrading works like a currency shredder machine. Whatever goes in, never comes out in one piece. Its a very common practice among tape readers or those who trade on one-minute chart or less. Remember that you can either take one trade in a day or you can take 50 trades in a day. If you lose the former at tolerable risk, it would not harm your capital much. But if you make small profit after 50 trades, consider it a loss due to costs involved.
If you are unable to control this habit, then just start shifting to a higher timeframe after taking the trade. It will help.
🚦Inconsistency
Say you have a plan but you are not executing it on every single trade. Your plan was to take a 1:2 risk-reward trade but sometimes you are taking 1:1 while the other times 2:1. A consistent trader would have a back-tested plan that he executes daily on every trade that he takes, no matter if that’s for a small profit every time. The trader needs to show some consistency in making small money every day/week. If he is consistent in it, then he can increase his position size for more profits and so on.
All the above reasons combine together to develop indiscipline. But if you will take care of the above habits, one at a time, as discussed then rest assured that you are on the right track.
Thanks for reading. I hope this was helpful 😉
Keep liking and comment for more such posts in future.
🚩No Plan of Action
Trust me on this one, most traders fail to build a plan of action and fail. It is not only true for new traders but also to those who have been in this market for several years. Even if the latter have ever formulated such a plan, they would have never executed it with dedication. A couple of failures and all planning just vanishes in thin air.
The trader needs answer to the following questions:
What to trade?
How much to trade?
When to trade?
Why to trade?
Is it for intraday or swing trade?
How much is the risk?
Is risk tolerable?
Is risk reward ratio favorable in this trade?
Is the trade in the direction of primary trend or against it?
If he answers all these questions in advance, he will not have to regret after entering the trade. This would also bring confidence 🦾 in him.
🧐Tip Seekers
New entrants would always look for tips from friends, business channels, broker or paid service providers. I don’t want to get into how this tip system works but I have never seen any tip seeker to be a successful trader. Rather I have seen many traders who lost their entire capital, even before their paid subscription was over. The harsh truth is that there is no shortcut to success in trading. Even seasoned traders have to work hard for making money. So, learning 👨🎓 is the first step for novice traders to approach what they seek.
🤑Get Rich Quick Policy
Everyone wants to be rich overnight so that he doesn’t have to work for the rest of his life. This attracts traders to buy penny stocks. What is more attractive than anything, with these stocks, is the quantity that can be bought. A larger number of shares with the available capital. The other thing is profit potential. Buy at 2 and sell at 4, money doubled overnight. Unfortunately, that doesn’t happen very often. Traders buy such stocks for day trade or swing trade but then they keep it for years for one simple reason that these stocks never attracted large portfolios, for some valid reason. For such traders, investment in a sound company would have been a better option 😆
Another very popular instrument which lures traders and has the potential to destroy a trader’s capital at much faster pace is 'Options', especially weekly index options. I have seen people at broker’s floor loosing millions in just few minutes. New traders should stay away from Options and always start small, may be in cash segment.
🥵Overtrading
Overtrading works like a currency shredder machine. Whatever goes in, never comes out in one piece. Its a very common practice among tape readers or those who trade on one-minute chart or less. Remember that you can either take one trade in a day or you can take 50 trades in a day. If you lose the former at tolerable risk, it would not harm your capital much. But if you make small profit after 50 trades, consider it a loss due to costs involved.
If you are unable to control this habit, then just start shifting to a higher timeframe after taking the trade. It will help.
🚦Inconsistency
Say you have a plan but you are not executing it on every single trade. Your plan was to take a 1:2 risk-reward trade but sometimes you are taking 1:1 while the other times 2:1. A consistent trader would have a back-tested plan that he executes daily on every trade that he takes, no matter if that’s for a small profit every time. The trader needs to show some consistency in making small money every day/week. If he is consistent in it, then he can increase his position size for more profits and so on.
All the above reasons combine together to develop indiscipline. But if you will take care of the above habits, one at a time, as discussed then rest assured that you are on the right track.
Thanks for reading. I hope this was helpful 😉
Keep liking and comment for more such posts in future.
JJ Singh
Trader/Investor
Moderator, TradingView
🚀Join t.me/jjsingh_2020 ,
A Free Education channel
🚀Tweet at twitter.com/JaySingh_2020
Trader/Investor
Moderator, TradingView
🚀Join t.me/jjsingh_2020 ,
A Free Education channel
🚀Tweet at twitter.com/JaySingh_2020
When you are confirmed about the trend and has taken the trade, the price pulls back and often looks like a reversal. The price dips so fiercely that we exit our trade but the candle closes higher.
But now we are in doubt so we don't reenter. Price starts moving up swiftly and it is confirmed that we took a wrong decision. Now we again enter at new highs.
Unfortunately price reverses a bit and we again think that this breakout is going to fail. So we exit, but the candle closes higher. This cycle repeats again and again and ultimately we close the day in a loss.
Waiting for candle closings can prevent over trading to a certain degree.