Why 95% of Traders Lose and What You Must Do

I have just finished Noble Derakoln’s “Winning the Trading Game, Why 95% of Traders LOSE etc”.

I like it in parts – the best was the section describing the path losing traders follow. I’ll start this series by setting the stage using Derakoln’s description (page 70).

Beginning with Happiness: For some reason, most newbie traders I have met start off with a series of winning trades – certainly this was my experience. Nothing feels better! Put a position on and whamo! Profits by the bucket load! Why didn’t I discover this sooner? I must be the world’s greatest trader!

Next Comes Greed: Now we start to overtrade and start to create fantasies of untold wealth. Then, sooner or later, the deck of cards come crashing down. Somehow we get into a trade that was way too big; somehow we failed to take profits (“not worth my while”); or somehow, we failed to exit at breakeven (I knew I should have got out when I had the chance). Now we are praying: “Dear God, please let me just breakeven – I’ll even accept a small loss!

Followed by Fear: Now we really start to fret. We look for news, magazine items, books anything and everything that will provide some solace to the deepening horror of imagined greater losses to come. By imagining future losses, we find the current loss easier to bear. It allows us to ignore the reality of the meaning of the actual losses. We can pretend that soon, very soon, the market will go in our favour and then the pain will stop. But as the losses mount, panic finally sets in and eventually either we run out of margin funds or the pain of losing is so great that we exit.

Which Leads to Sorrow: The loss was an aberration – ‘the method was good, I only have to find a way to avoid losing trades!” “After all ..the market just turned around. It was a shakeout, I just didn’t have the courage of my convictions (my stop was too close)” etc. All I need do is study and find a solution to the pesky problem of losses.

Frustration: The problem is no matter how much we study, the problem of losses remain. We find that in just one trade, we lose months of profits; worse still, we lose all our capital in just one trade. And, we find that this loss of all our capital happens more than once. “It’s not our fault. I returned 1000% my original capital in just one month! I must be a good trader! It’s all the broker’s fault – it’s Ray’s fault (he’s hiding his good stuff) – it’s the market’s fault; it keeps finding Black Swan aberrations! etc etc.

Defeat: We come to feel that we’ll never be winners. The seminar we attended (book we read) was a load of xxxxx. ‘The author makes all his money teaching (writing) – no wonder he said it would take 3 years to be successful’. Then a new ‘get, rich, system (software)’ flyer arrives and the cycle starts again.

Until I read the pages in Drakoln’s book, I couldn’t understand why I had been unable (at least to the extent that I wanted to) to have newbies accept that success comes from:

Winning Psychology (60%) x Effective Money Management (30%) x Written Plan with an Edge = Success

Even though the multiplication sign between each factor meant that we need all three to succeed, most newbies I struck at Expos, ATIC (see http://www.theatic.net/2008/about_atic.php) etc failed to break the Drakolyn’s cycle.

Today, I realized that I needed to present the material differently. So folks, wait for it! Tomorrow, I’ll introduce the Paradigm of Success.

4 thoughts on “Why 95% of Traders Lose and What You Must Do”

  1. Ray

    You said:
    The author makes his all money teaching (writing) – no wonder he said it would take 3 years to be successful’ Unquote

    Yes, I have come across such ‘grievances’ but rarely, as most know trading is not easy and to be good,one has to work hard just as the saying goes, success is 90% perspiration?

  2. Ray, just out of curiosity… what would you label the phase someone like yourself is in? I read through those labels laughing to myself… of course I’ve experienced ’em all! And the problem of losses has NEVER left! I still find myself staying in just a little too long sometimes or holding out for just a little bit more… but I’ve finally come into the phase where I’m not “always” trying to win back my unnecessary losses…. I wonder what phase you’d call that?


  3. Hi Jeff

    Me? It depends: on a good day, I’d label myself consciously, unconsciously competent. On a bad day, consciously competent. Here I am referring to NLP’s 5 stages of competence ranging from unconsciously incompetent to consciously, unconsciously competent.

    The stages described in the blog are sub-stages in the unconsciously incompetent and consciously incompetent phases.

    I have found that once we move beyond conscious competence, we tend to traverse the last 3 stages; and no matter how good we become at trading, there will be trades where we “stay in just a little too long sometimes or holding out for just a little bit more”.

    But when this happens, there remains critical differences in the results between the incompetent and competent trader.

    The difference lies in the magnitude of the adverse consequences: while a pre-defined loss may turn into a larger than planned loss, it does not turn into a catastrophic loss; in the case of a large profit, while smaller than it could have been, still remains a respectable risk:reward return rather than turning into a loss.

    Finally, in what phase are you in? I’d call your phase consciously competent or unconsciously competent.

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