Good Read

KAL.YUG

Well-Known Member
#1
This is a very interesting article that I came across and thought should share here.
_____________________________

Why Most Traders Lose Money and Why the Market Requires It
Posted on December 30, 2014 by Cory Mitchell, CMT

Today, I take a more abstract and deeper look at the issue of “why most traders lose money.” As you are reading, and as I point out in the article, individuals can escape from herding behavior and create above average (or below average) returns. That said, in order to break from the herd there are a lot of things that must be known about yourself, human tendencies and how these combine to form societal movements (such as in the stock market). This article will show that what you believe may be your own path may be the exact thing which is keeping you a part of the herd, and thus always entering and exiting the market at the wrong time. It’s a fairly long article, it may piss some people off, but in long run accepting and learning to deal with the issues which are addressed in this article may help you to move into the small realm of successful traders.

Why Most Traders Lose Money and Why the Market Requires It
By: Cory Mitchell, CMT

Most traders have heard the statistics…”95% of traders lose money,” “Only 5% of traders can make a living at it,” or “Only 1% of traders really make money.” Whatever the particular number is from recent studies, the fact is, many traders will lose money and it simply cannot be avoided (for some hard numbers, see The Day Trading Success Rate, The Thorough Answer). All sorts of reasons are given for it, such as money management mis-haps, bad timing, bad government policy, poor regulation or a poor strategy. These are all well and good…and some of those do definitely play a role in individual trading success…but there is a deeper reason. A deeper reason as to why most traders will lose regardless of what methods they employ. I purport, that even if all traders knew how (keep in mind knowing, and doing are two very different things) to trade successfully based on current conditions, still most traders would lose over the long run.

Why Most Traders Lose Money – The Market is Not Independent of Us, It Is Us

Why most traders lose money and what traders often fail to realize is that the market is the collective movement of their actions and reactions to their own actions and to other people’s actions. Sound confusing. Consider this: You tee up a trade, close your eyes and hit “enter” (open the trade). You have no idea what the market is doing (your eyes are still closed), but you begin to react to your action–you wonder if you made the right decision, if you should adjust your stop loss or if you should have gotten in earlier or later. That continues to occur after you open your eyes and see how your action (trade) is acting in relation to others people’s actions and reactions. Even seasoned traders can go through these emotions at times.
In other words, the market is a giant feedback loop, showing traders (and anyone who views the market) a thermometer reading of the social mood under which traders, and by extension society, are operating.
Most traders seem to think of the market is something that has some external value outside of the price attributed to it by traders. I prefer to think of it as a real-time gauge of a society’s view of their own productive capacity…or more simply put–social mood.
When markets are understood, the idea that everyone can make money is not only inaccurate, but impossible and laughable. Everyone making money means there is no market, because who would be taking the other side of the trade?
In addition most traders feel they can move with the crowd to make a (paper) profit, and then get out before the crowd, turning that trade into a real profit. In theory this is sound, but remember everyone else is setting out to do the same thing. It is this crowd movement which allows traders to make money at times. Without a large portion of traders coming to the same decision markets simple would not move. It takes conviction by many traders to create a trend, then it takes euphoric acceptance that “this is the new norm” to end it and “bend it. ” It then takes mass disillusionment to crash it the other way.

Why Most Traders Lose Money – Only Individuals Can Beat the Market, Not the Crowd (and the crowd is the 80-90+%)


Please continue reading at the following link.
Link: http://vantagepointtrading.com/archives/7665

K
:)


.
 

Similar threads