Do you know why traders fail?
My YouTube channel was created in 2013.
The first blog post on TradingwithRayner went live in 2014.
And along the way, I’ve interacted with thousands of traders and the truth is…The majority of traders fail.
You want to be spoon-fed without doing the work
“Hey Rayner, which is the best moving average to trade with?”
“Can I use 2 ATR to set my stop loss?”
“Which indicator is best for Trend Following?”
Now, those are the type of questions I get each day.
But what’s wrong with these questions?
It shows signs of laziness, that you’re not willing to do the work — and you want to be spoon-fed.
And here’s the thing:
Even if I tell you a method, strategy, or indicator is the best, you won’t have the conviction to trade it, for long.
Because when the drawdown comes, you’ll abandon it and claim it doesn’t work. Then you’ll look for the next best thing and the cycle rinse repeat itself.
Do you see the recurring pattern?
You don’t validate your findings
You’re probably wondering:
“What does validate mean?”
When you validate a strategy, it means you’ve tested it and know that it makes money in the long-run. (This can be done via backtesting, forward testing, etc.)
And here’s the thing:
Most traders are not willing to validate their findings. You don’t want to do the work. You’re not willing to spend the time to figure out whether something works, or not.
Instead, you want to “copy” the strategy of other traders and hope things turn out fine.
Unfortunately, that’s not how it works.
Because if you don’t validate your findings, you won’t have the conviction to trade it when the drawdown comes (I can guarantee it).
But if you do the work, validate your findings, and know you have a trading strategy that works — it’s a gamechanger for you.
You minimize the fear of losing because you know your trading strategy has an edge in the markets.
You minimize the fear of the unknown because you know what’s your maximum drawdown, average winning rate, losing rate, risk to reward, etc.
You won’t constantly look for the next “best thing” because you have something that’s proven to work.
In other words, if you validate your findings, you increase your odds of becoming a consistently profitable trader.
You get swayed by the noise the out there
Do you know there are 1.7 billion websites?
Yes, you read me right. Billion with a B.
So, when new traders want to learn about the markets, they get overwhelmed!
You’ve got stuff like Forex, Options, Stocks, Futures, Indicators, Price Action, RSI, MACD, Elliot Waves, Fibonacci, Stochastics, Pivot Points, etc.… and I’m just scratching the surface.
Where do you start?
That’s why if you want to learn how to trade, you must start with the end in mind.
This means you must know what’s your end goal and then work backward from there.
Here’s an example:
- Let’s say you have a full-time job and want to trade part-time
- Your goal is to beat the markets earning anywhere from 10 – 20 % a year
- You want a trading system that’s rule-based so you can follow it consistently without second-guessing yourself
Now once you’ve defined your goals, it helps you filter out the noise and focus on the things that matter.
In other words, you can ignore Price Action Trading, Day Trading, Elliot Waves, Chart Patterns, Support, and Resistance, etc. because it’s subjective and not what you want.
Instead, you should focus on systems trading on the Daily timeframe (and above) as this meets your criteria.
Can you see how powerful this is?
You’re doing it alone
Remember when you were in school?
You had a teacher for every subject to learn from.
Outside of classes, you had a coach (whether it’s football, basketball, and etc.) to provide feedback so you can improve your game.
And even when you’re “chasing” the girl of your dreams, you have buddies (who are expert at the game), giving you advice, tips & tricks on how to win her over.
Clearly, at every stage of your life, you had someone experienced to give you feedback, advice, and knowledge.
But when it comes to your trading career…
…you’re doing it alone.
And by figuring things out yourself, you face questions like…
“Does this trading strategy work? Do I have an edge in the markets? How do I know what works and what doesn’t?”
Now, I’m not saying you can’t make it on your own.
You can… with hard work, determination and paying HUGE fees to Mr Market.
How much time, effort and money you’ll save if you have a mentor?
In case you’re unaware…
Paul Tudor Jones had Eli Tulis as his mentor.
Jerry Parker had Richard Dennis as his mentor.
Stan Druckenmiller had George Soros as his mentor.
Every one of these legendary traders had someone to guide them to take their trading to the highest level.
What about you?
You don’t have the correct expectations — here’s the reality
Let me share with you a secret…
During my university days, I had a dream of becoming a full-time trader straight after graduation.
No bosses to answer to.
No need to work for any company.
No need to participate in any politics.
My plan was to take my entire savings of $5,000 and borrow another $5,000 from my dad (for a total of $10,000) to trade full-time.
I figured if I could make $2000 per month, then it’s enough for me to survive and fulfill my dream.
And that’s what I did.
But 6 months into my “trading career”, things didn’t work out the way it’s supposed to.
Not only was I bleeding my trading account, but I also relied on my parents for financial support.
It’s then I realized I didn’t have the correct expectations to start with.
1. No proper skillset
Here’s the thing…
I attempted to trade full-time without having the proper skill set.
Let me ask you, would you allow a surgeon to operate on you if all he/she did was read a few books?
2. Lack of trading capital
If you think about it, I needed a return of 30% each month to meet my living needs (which isn’t realistic).
This resulted in the “need to make money” syndrome and caused me to break my rules — and led me to take on losses larger than expected.
Trading isn’t a get rich quick scheme.
It’s a money-making skill to grow your wealth steadily in the long run.
You don’t have this most important thing in trading
I used to think…
Trading is 80% psychology.
Trading is about following your plan.
Trading is having proper risk management.
And it’s true.
But, it’s useless if you don’t have an edge.
This hit me hard when I read Market Wizards and Jack Schwager said something along these lines…
Imagine you’re going to gamble in a casino.
You adopt proper risk management and keep your bets small.
You psyche yourself up with positive affirmations like…
“Lady Luck is shining on me!”
“I will make a killing today.”
Well, guess what?
You’re still going to lose.
Because you don’t have an edge over the casino.
Without an edge, even the best risk management and psychology won’t save you.
The bottom line is this…
If you want to be a consistently profitable trader, you must have an edge.
You focus on tactics, not principles
First, let me explain what tactics are.
Tactics refer to things like entries, exits, best indicator settings, etc.
The problem with tactics is you’re not seeing the big picture (in other words, missing the forest for the trees).
For example, a Trend Following strategy is backed by 5 principles…
- Follow the price
- Buy high and sell higher
- Trade a variety of markets
- Risk a fraction of your capital on each trade
- Trail your stop loss
If you follow these 5 principles closely, you have a good chance of making money in the markets.
But, if you focus on the tactics like the entry point, stop loss or chart patterns, then you’re missing the big picture.
So the lesson is this:
Always focus on the principles first, not the tactics.
Because you can have the “best” tactics in the world, but if it’s built on wrong principles — you’ll still end up with junk.
At this point…
You’ve discovered the biggest reasons why traders fail and how you can avoid it.
Now here’s what I’d like to know…
What’s the biggest takeaway you had from this post?
Once again, this article is a guest post and was originally posted on Rayner Teo‘s profile on InvestingNote.
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