There 3 main reasons why people fail to make money in the stock market:
1. Nebulous goals – if you don’t have a specific goal, you are trading for nothing. You have to set a goal to achieve it.
2. Lack a repeatable and measurable method of analysis and decision making. If you don’t have it, you can get lucky but ultimately you will lose everything.
Because human brain is not wired for trading. Your brain is wired to take profits too early and hold onto losses too long. To rewire your brain you need a repeatable and measurable process.
If you just trade on emotion and don’t have a system, it’s better to just put all your money on one bet. And you either make a lot money or you lose it all (don’t do that please). But at least you would get the pain over quickly. Otherwise, you win, then you lose, then you win, then you lose… and it will take months before losing all your capital.
3. Poorly designed execution strategies – you don’t know how to get in and how to get out – it’s all an impulse. You don’t get rich selling quick. And if you trade for targets and make your stop loss a function of your target, you shouldn’t become emotionally challenged.
We all must learn that in the stock market, uncertainty is a constant.
And only a repeatable and measurable process can reduce it.
But the process does not need to be complex.
This is a dichotomy of attitudes: people believe they need a complex solution to a problem, they don’t believe a simple solution can solve a complex problem.
After all…the money earned or lost in any single trade is really quite irrelevant…
Because after you make one successful trade, the next trade only risks the profit from the last trade (assuming uniform position sizing).
It is the repetition of trades that earns a return over time…no single trade is any more important than another.
If you want to make more money, trade more often. Don’t go for the home-runs, it does not work…
The purer the mind, the better the trader.
People often talk about the psychological aspects of trading. My opinion is that there is no place for psychology in trading.
One either has a process or does not…