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Home Articles The One Reason Why Traders Fail And Lose Money

The One Reason Why Traders Fail And Lose Money

Tremendous amounts of money can be made from trading. While profits are there for you to take, it’s more important to learn how to avoid losing money. Over the years, I’ve seen hundreds of traders come and go.

I’m constantly amazed at how few of them take a moment to stop and see where they’re going. That’s because they want money now. They have no patience. Most of the traders trade because they want instant gratification.

I always say that trading is like a spouse, difficult to please. Experienced traders understand this and they wait patiently for the high probability trades, even if it means not trading for a few days or weeks.

But not our young, wild and in-a-hurry macho trader, who wants it all now – right now!

Cognitive Dissonance

I associate this behavior with cognitive dissonance, a psychological concept that refers to a situation with two conflicting beliefs, attitudes and behaviors. The theory of dissonance states that people who are forced to do something they really have no interest in, dissonance is created. They think “I’m not interested” in this and their behavior says “I did it.”

Take the example of smoking. People smoke in spite of knowing that smoking causes cancer.

A majority of new traders are young and ambitious. They want to earn money and they want to party hard.

Now coming to trading, such people focus only on completing their trades, taking the money and partying, having fun with girlfriends/ boyfriends, taking drugs or buying expensive cars. They say “I’m not interested” in sitting for hours to trade. But “they do it” for money. This brings about an urgency and restlessness in their trades.

With this attitude, how can anyone achieve success?

Where Are The Rewards?

Successful trading is the domain of masters such as Paul Tudor Jones, George Soros, John Paulson, Richard Dennis, Steven Cohen and John Key.

They are not magicians. They don’t come with superpowers. The factors that bind these successful traders together and set them apart from the losing traders are – INTEREST and DEDICATION to their craft. Trading is their life. They know how to take profits out of the market.

They achieved all this by design – not coincidence, not luck.

Improve Your Outer Game

Sitting in front of your computer day after day may seem boring. But the adrenaline rush pro traders get is something you have to experience to understand. As I said earlier, trading is a spouse who expects complete loyalty and your time. An affair is not taken too kindly and you’ll end up losing what you have.

If you’re lifestyle involves doing all sorts of crazy things, having fun, partying, spending all the money that comes in, you’re going to have to work hard at developing the trading mindset.

“The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.” – Jesse Livermore

I have new traders asking me why I don’t trade every single day and every single wave. Many of them don’t understand why. with my experience. I’m not taking advantage of the markets more.

Because we have to follow the market’s lead, not the other way round.

We follow along carefully observing where the market is leading us and jump in at the right time. It’s like playing a game, respect the rules and wait for your turn. Improve your outer game. That’s how the top traders succeed.

According to Jessie Livermore, Money is made by sitting not trading.

Develop Your Inner Game

Control your mind to be able to better handle the waves of uncertainty and the erratic data that the market keeps throwing at you. With the market seeming so random, it’s easy to get frustrated and even question your own ability to ever succeed. Markets can test your self-worth to the core.

Don’t lose your confidence. You will be pleased to know that successful traders are not necessarily intelligent. While some have an innate calmness in them that is perfect for trading, others like me, have developed that mindset.

You can be a successful trader, if you choose to change your mental makeup, if you choose to bury your ego and if you choose to respect the market and wait for the right time. Be humble not arrogant. Be patient not rash.

My Experience

Trust me when I say, I was like you initially. I used to do what I thought was right, without bothering about the markets. It was my money after all and no market can dictate to me. I wanted to extract whatever I can from the market. But things backfired. I lost more than I made. I was depressed not knowing where I was going wrong. It wasn’t supposed to be that way. All my plans of chartering a flight to travel the world were crushed.

Suffice to say, lesson learned.

Throughout my trading life, I have seen several people that I have known failing because they did not respect the markets. If you don’t follow the market, it will take you.

Thank you for reading this. I hope you understand where you’re going wrong. I want to see you succeed. I want you to come back and let me know your success story. Nothing gives me a high like reading a success story from someone who was once on the losing end.

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