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Registered User
Joined: 9/21/2005
Posts: 566
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Saw a survey on why futures traders lose money, so thought I would pass along some of the conclusions to anyone interested. Even thought its on futures trading, I think many of the reasons apply to stock trading as well. I only am including the top ten reasons which seemed the most pertinent in any event:
1. Many futures traders trade without a plan. They do not define specific risk and profit objectives before trading. Even if they establish a plan, they "second guess" it and don't stick to it, particularly if the trade is a loss. Consequently, they over trade and use their equity to the limit (are undercapitalized), which puts them in a squeeze and forces them to liquidate positions. Usually, they liquidate the good trades and keep the bad ones.
2. Many traders don't realize the news they hear and read has, in many cases, already been discounted by the market.
3. After several profitable trades, many speculators become wild and unconservative. They base their trades on hunches and long shots, rather than sound fundamental and technical reasoning, or put their money into one deal that "can't fail."
4. Traders often try to carry too big a position with too little capital, and trade too frequently for the size of the account.
5. Some traders try to "beat the market" by day trading, nervous scalping, and getting greedy.
6. They fail to pre-define risk, add to a losing position, and fail to use stops.
7 .They frequently have a directional bias; for example, always wanting to be long.
8. Lack of experience in the market causes many traders to become emotionally and/or financially committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have made a mistake, or they look at the market on too short a time frame.
9. They over trade.
10. Many traders can't (or don't) take the small losses. They often stick with a loser until it really hurts, then take the loss. This is an undisciplined approach...a trader needs to develop and stick with a system.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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All excellent points.
Almost all trading failures will fall under the
general categories of:
Knowledge
Emotion
Bias
Thanks
diceman
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Registered User
Joined: 12/2/2004
Posts: 1,775
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jcfla7, #10 in your list has been my weakest link by far throughout my trading career. But I have finally started to get a handle on that wicked beast in the past couple years for the most part. Feb. 27 correction of this year was actually quite satisfying for me because my account was down only about 1/3 of what the market had suffered. In the past on such draw-downs I would often take a hit double what the market suffered.
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Registered User
Joined: 9/21/2005
Posts: 566
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I am getting better about taking losses but am having a challenge in how to manage profits. Still trying out different approaches to scaling out of a position. That I am finding to be really challenging. It's hard not to sell when you know your position has gone up.
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Registered User
Joined: 1/7/2007
Posts: 45
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Always protect your profits. Don't sell all, I sell at 10 % up, half the postion and let the rest ride.
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Registered User
Joined: 10/7/2004
Posts: 2,126
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Dear fcfla7, I would like to know were the article came from. I looks like a guide line to give you a reason to do whatever it is they are interested in having you do.
Per Example: I want you to trade longer term - I tell you how bad it gets trading short term. Marketing plays with the mind in ways some times invisible to it.
I sure can speak for myself after daytrading for about 9 yrs, and not having encounter such a problem. In fact I went from long term, to swing, to position, to daytrader (it took me about 6 yrs to see what it was all about).
Why - it didn't take me long to realize that the more time your money is in the market the more risk you take.
Against what those folks are telling you (and what most folks who know nothing about nothing, and have other agendas in mind) I can say that daytrading is far less risky than any other type of trading if you execute just one single rule (and that is the least) - YOU CLOSE YOUR TRADE BY DAY'S END - PERIOD - Better yet is if you set a price to get in and to get out - and you execute as planned. Never use limits to get out, and never hope - just do as plan.
The LESS risky activity you can do is SCALPING (why? minimun amount of time in the market - simple).
I RATHER DO A SCALP WITH big blocks (10,000 or 20,000) of SHARES FOR A FEW MINUTES OR SECONDS THAT COMMIT MY CAPITAL TO SEVERAL DAYS OR WEEKS, OR MONTHS.
Your risk is directly proportional to the time your capital is at stake.
It makes sense to me to commit large amounts of capital for small amount of time to benefit from small moves, when volatility is lower.
By the way, you cannot have a job if you daytrade. You must be able to watch the tick anytime during market hours, and all the time while in a trade. Those who call themselves daytraders because they have made a few intradaytrades here and there from the office or else are not real traders - those without 100% dedication to this difficult and stressfull task eventually become losers. The market waits for noone, and if you lose the ride you lose it is that simple. I would never take my eyes off the tick while in a trade regardless. YOu can forget about daytrading with your blackberry or palm - THAT IS FOR LOSERS WHO THINK HAVE AN ADVANTAGE, WHEN IN FACT ARE AT A DISADVANTAGE. The reliability of your data is one of the first priorities when you scalp. Saving $60 or $100 a month for unreliable data or trading plataforms without level III or time of sales, or other crutial tools to this task certainly will make you lose.
And please don't get me wrong, I am not saying you cannot trade longer term. You certainly can - just make sure you insure your capital at stake. I sure wouldn't touch a longer term trade without insurance. Each toos to each task.
Hope it helps. You will not lose when you know how to win.
good luck
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Registered User
Joined: 9/21/2005
Posts: 566
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All good points, Bigblock. I think the source was a survey of future's traders but am not certain. I found it by accident when searching for something else. I think your point about risk management is correct in that shorter-term trading (1 or 5 minute charts and scalping) is less risky all things considered but also agree you have to make it a full-time job so don't think its the best style of trading for me.
By the way, I am reading a really good book on the psychology of trading called, "The Secrets to Emotion Free Trading" by Larry Levin. He talks a lot about how emotions and bias can ruin a good trader's methods and long-term success. Also some good tips and pointers on how to deal with drawdowns and reverses. One of his better quotes is this: "A person with good self-discipline but a poor trading method will outperform a person with poor self-discipline but the best trading method currently available."
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