BarroMetrics Views: Trading Success
I started trading in the early ’70s to mid ’70s. Looking back I can see the great strides made in the understanding of the human psyche – how we make decisions, what drives us, etc; we have also made great strides in our ability to test our trading theories. But despite the great improvements, this generation’s success rate is no different to that of the ’70s: 80% to 90% of traders are unprofitable over a large sample size.
I believe the reason for the high rate of failure lies in the ability of humans to deny reality and in the process, fail to learn the lessons history can teach us: witness Obama’s resort to government regulation to ‘save the US from the business cycle’ – but that is another blog for another day. Today we are speaking about why traders fail.
Traders fail because in the last resort they fail to manage their risks and fail to manage their trades to minimize their losses.
Let me give you an example.
Recently I have been communicating with someone (X) who is especially open and communicative. It’s a trait I think is necessary for success because we first need to be aware of the problem before we can find a solution. X said:
“when it comes to real life trading, I am still unbelievably biased and stubborn, not willing and daring to admit that I was wrong.”
“I started short positions too early. And again, because I BELIEVE that this is a bear market rally, I never put a stop loss on my short positions. I believed that the market eventually would come down. I figured that I could not go too wrong by going short in a bear market. Well, I am deeply under water now”.
Will X make it? I believe he/she has a great chance because he/she is prepared to face his/her shortcomings.
Most traders I have met will deny and rationalize. In so doing, they lose any hope they have of solving their problems. But being aware is only the first step; X still needs to take action to manage his/her risk and manage his/her trade.
All the best X!