Two Main Reasons Why Traders Fail and How to Avoid Them
Dec 11, 2019
The biggest concern for anyone looking to get into trading is the possibility of failure.
Well, there are really only two main reasons why you would fail.
Investing Your Entire Portfolio
The first one is the most obvious one, and it is if you run out of money.
If you end up busting on a trade completely you may lose your full account.
That's why I always say you should only put 20% of your portfolio or your account in any one trade.
- You don't want to go all-in on one trade, and lose everything, and not be able to invest more money elsewhere.
One of the only reasons traders fail is that they think they have the hot tip or the next skyrocketing stock.
Unfortunately, your investment won't pan out the way that you hope unless you follow the right rules and understand that it's a statistics game.
One key thing to remember is that if you are starting to lose money, just exit the trade.
- If you lose more than 10% on any position and don't have a news catalyst or some other reason to believe the stock will go back up, it may be best to cut your losses.
It's unfortunate, but it allows you to keep trading and stay in the game.
Lack of Focus and Commitment
The second reason why traders fail is that they keep jumping around for the next shiny object.
You probably know people who come to you with a new hot business idea or a new investment opportunity every other month.
- They are constantly shifting their focus and never really diving deep into one sector or industry.
- Without focus and dedication, you are never going to make it.
This applies to traders who fail as well. They hop around too much.
As with anything in life, if you don't keep consistent and you don't have the discipline to keep going and keep learning and keep refining and enhancing your skills, then you'll never succeed.
That is the biggest reason why traders lose.
Many people go six weeks in, eight weeks in, and then they shift strategies to something completely different, and it just doesn't work.
You have to invest the right amount of time in order to enhance a specific skill set.
The Japanese invented a business concept known as Kaizen, which means continuous improvement.
- If you only improve even 1% a day, just a measly 1%, by the end of a year, you'll have improved.
If you focus only on weekdays, you can take 65 days off.
Let's just round the 365 days in a year down to 300.
- That means at the end of a year you'll be 300% better than you are today.
Imagine how dramatic of an impact that would have on your life.