Seasoned traders and investors will all agree that there are some things you just shouldn’t do when investing in the markets.
And what’s more – the traders or investors who do these certain things end up becoming the statistic – more than 82% of traders close their accounts within 9 months, never to trade again. Long term investors have it slightly better, although 2008 certainly sent many running for the sidelines.
That’s why I’ve made a list of 10 major reasons why traders and investors fail in the markets. How can you use this? It’s simple – do the opposite of everything on this list, then click the link at the bottom for even more reasons and things to avoid. When you know what to avoid – you can be far better prepared.
Ready? Let’s get started!
1: They don’t create a plan. You wouldn’t start a business without a business plan, would you? Then why start trading without a trading plan? List your entry and exit rules, you money management, your goals. All of these things bring you greater success.
2: They can’t admit when they’re wrong. We are all wrong at times – but the best traders or investors don’t have trouble admitting it. They are able to sell out of a stock at a pre-determined point, regardless of how much they love the stock. Forget your ego, and start being ok with being wrong. (Please note… this reason may also be wrong).
3: They don’t have the discipline to stick to their strategy. For example a long term investor who gets shaken out of the market by a short term price fluctuation. If you have a strategy, stick to it. If it really doesn’t suit you, change it.
4: They mistake a rising market for investment skill. Ah bull markets. How many “gurus” come out of the woodwork as a market is rising? And what happens to most of them when a bear market comes? That’s right, never heard of again. Whatever the conditions, keep learning in the markets. Or as Han Solo from Star Wars puts it: “Don’t get cocky, kid”.
5: They have a plan, but they don’t follow it. So they have done the research, they’ve tested their theories, but when they actually put money in the market they break all of their rules!
6: They give up too quickly (and don’t let their expectancy work). Many methods will work over the longer term, given a positive expectancy. But some traders or investors get discouraged and give up, right when the market conditions are about to change in their favor.
7: They listen to the news. Everybody loves gossip, and traders and investors are no exception. The only trouble is when it comes to the news: they are reporters, not investors! They don’t actually know what the blazers is going on! So they make something up, like “hedge funds are short selling” or “investors are running to safe-haven assets”. If you want gossip, listen to the news. If you want trading wins, get a solid system.
8: They don’t watch the trend. Some of my best friends are extremely successful fundamental investors. But even the most successful fundamentalists lost money in 2008 (and some of the best fund managers got absolutely hammered), because they didn’t keep an eye on the trend. The stock market will lead the overall economy by approximately six months, so watch for a trend to emerge regardless of company balance sheets.
9: They think that investing does not mean hard work. Ah the carefree life of a trader – lying on the beach making casual calls to your broker. What a life! And what a load of marketing rubbish. The truth is, becoming a trader or investor is hard work. You need to research and manage your positions, while not losing your head.
10: They hound people for tips instead of learning the ropes. How people love tips! Some people will do anything for a “hot tip” in the market. But it’s usually at the expense of actually learning the ropes themselves. And if you buy using someone else’s tip, when do you sell?
Get 31 MORE reasons why traders and investors fail and things to watch out for at Dave’s free site www.ASXmarketwatch.com.
