By Paul Ebeling Face Reality When Trading the Financial Markets You may have seen the articles about how trading the financial markets is a very hard to succeed in. How every day, hundreds of fledgling traders try their hand at the stock market for the 1st time, and in a couple of weeks they recede with their tails between their legs.
It is common that new traders see this content and think to themselves “Hey, I know what to do now. I can succeed where they have failed.”
This is a good mentality to have in the long run, as facing adversity can drive you to do better and exceed your own expectations.
However, there is a reality to face.
Even if you read all the trading book adnblogs in the world, there are Key reasons why people end up failing.
The Big Q: What are The Reasons?
One fatal flaw that most traders fall victim to is perceiving the stock market as a standalone entity. They look at it as game of Me Vs. It, That the financial markets are things to be conquered.
The market is actually something much bigger and allegorical than that.
The stock market is affected by the action of others around the world. It is operating on the actions that all make, and traders affect it in a grander way than most.
When looking at the stock market, it is a look at a litmus test for the culture of finance and social moods of society. In this same vein, the market is largely movable because of thousands of traders making similar decisions, thus creating a pattern. This speaks to how the market is more so a collective than it is a commodity item.
So, it is imperative to consider this carefully: the stock market can only operate when someone is losing money.
When everyone who plays the game of trading makes money, there’s no one on the losing end of things. In stock trading, there has to be a gain and there has to be a loss, there is a Winner and a Loser on the side of each trade.
If you want to try out stock trading then this all may sound disheartening, what is the point in trying if there’s a 90% chance that you will fail?
Stock trading success depends on Optimism.
While the odds are stacked against you, you will fail for sure if you do not try. As trying at least gives you that 10% chance of making a profit.
The simplest solution is to stay realistic but hopeful, and not pessimistic.
When you know going in that there is a very large learning curve and the possibility to fail, you do not give yourself too high of expectations. This, then, is a integral part of trading psychology.
Psychology has a lot to do with the success of stock trading, whether in terms of market projections or individual mentality.
One demographic of traders that fail are those who were not mentally prepared for trading, and this can apply to the pressure required of trading stocks or the failures they go through that ultimately push them out of the market altogether.
Psychology and trading are also impacted by concepts like culture and sociology.
There is an ebb and flow to the stock market, and it is usually dictated by social circumstances. This can include a grand scale social incident, like a newly diffused war that helps to reignite a country’s economy, or more simply social ideas, like trader mentality and crowd-think concepts.
Remember, there are some obvious mistakes that many fledgling traders make that cause them failure.
Understand that trading is not a Game of being psychic or perfect. It is a game of experience, patience and paying attention.
Below is a list of some Key reasons people fail as new traders, as follows:
- You do not consider practice Vs. the real thing: One method of trading practice is to use a trading simulator, and this is definitely not a bad idea. Trading simulators help you get acclimated to the intricacies of trading, but they don’t prepare you for the psychological aspects. When you’re playing around with fake money, losing big might make you feel bad because of the implication you failed at trading, but it does not compare to the emotional turmoil of losing all of your real cash.
- You focus too heavily on finding the perfect strategy: There is no perfection in stock trading, ask seasoned traders and they will tell you that even they fail at times using tried and true strategies they craft after years of experience. New traders tend to always push for that “Holy Grail” trading strategy. It’s important to continuously look for ways to improve the strategies you have in place, but trying and failing to find the perfect strategy is a waste of time.
- You deviate from the strategy at hand: Instead of flip-flopping on the strategy you already have in place, follow it through. If it fails, you know it won’t work the next time and can adjust it accordingly. Apply scientific method-like analysis to your trading strategies. Develop hypotheses, and then see how your experiment pans out. When you do not stick to your plan, your methodology can’t be analyzed as well as it could have been otherwise.
- You react to the market on a whim: Good traders establish a decent risk-to-reward ratio. When you do not have a plan in place, or you do not stick to the plan you already prepared, you risk simply going off of the market itself. Sometimes this can do you some favors, but realize that any earnings you make based on a half-cocked strategy will be pure luck. Only reacting to the market and not creating a plan can negatively affect your win/loss ratio in a big way.
- You trade too much: Many new traders assume that the more they trade, the bigger their chances of success are. This is false. You should be trading because you have found a good opportunity to trade, not just because you feel like you need to trade for a daily quota.
Failure does not have to be inevitable in the world of trading. If you put in the effort it takes to succeed and commit to practicing good trading habits, you will likely prevail. Source: http://www.livetradingnews.com/
