Why do traders fail? The answer to this question is what many a traders seek. Newbies see successful traders and try to emulate them in their ways and actions but not in their know how's of trading. Successful traders have a trading system in place. Their trading system has all the ingredients to make them successful. They have plans, strategies and much more, which they apply to the challenging market situations.
The traders who fail to make it in the Capital Markets, never ever had their own trading system in place. All they had come with was with a starry eyed dream of making it big with a make-believe thought process, that if the successful traders can make it big, they too could.
A successful traders system consists of plans, strategies with a built in mechanisms to have more than 60 percent winning trades. So the win to loss ratio works out to 6 winning trades to 4 loss making trade for every 10 trades. This win to loss ratio makes traders wealthy in the long run. A much higher win to loss ratio is very much possible. This will come with the practical experience in the markets.
What is a system? A system is nothing but a set of rules, mechanical by nature, which a trader applies to various market conditions while taking a trade. Rules are objective in nature and if applied can get a trader successful results. By "applied" it means the process designated to the rules to achieve the desired positive results. So the process is of utmost importance, which guides a trader in systematic application of the rules.
Most traders believe they have a system in place. But on most occasions much is desired of the system and the traders trading results are witnesses to the undesired outcome. Although traders have rules, they do not follow them. Most of the times the traders will act on tips or how they feel about the markets or what other traders are doing. This action of traders is subjective in nature. This action of traders is a distraction and takes them away from their rules…send a loud message of not being disciplined. Being disciplined is one of the ingredients of the system, which will always prove itself to be fruitful beyond a trader's wildest imagination.
Rules can be taught and understood by the traders. But disciplining themselves to apply the rules and the system are a different ball game altogether. The non-disciplined traders will always second guess their systems, even if the system is brilliant. It is for this reason alone they will trade irresponsibly, moving in and out of trades.
The wrong trades and the lost money will always be blamed on the system. But a trader will never blame his role in a trade. He will never commit the wrong doings to himself, in which he did not follow the rules. For this reason alone, a trader will constantly be in search of the "Holy Grail" or a trading system that will work like magic. The day the trader takes responsibility for his action he would have won half the battle. And success will await him around the next bend.
The journey from failure to success as a trader comes in 5 stages.
1st Stage:
The humble beginnings: Some of the numerous ways a "to be trader" might be introduced to the Capital Markets, is by someone who describes all the wonders the markets holds for him. Or introducing him to freedom from drudgeries of work. Or introduction to working for self. Or an introduction to an independent way of subsistence. These are some reasons, which could have influenced a new comer to work in the Capital markets. All said and done…when a new comer takes a decision to enter the Capital Markets for what so ever reasons…he has taken the first step in his journey towards world of Capital Markets.
2nd Stage:
The curiosity: The second stage is where a new trader is probing and is inquisitive about the Capital Markets and its workings. A trader will be asking questions of self and try to get as much information regarding the markets and the role he wants to play. Some questions which could come to a new trader's mind are…how much money can be made by trading or investing? What would be the capital needed to begin? What does it take to be a professional trader? Is there a way where money can be made with ease? Is there a Holy Grail, which I can use? In how much time can I become a professional trader? Where can I gather all the information I need to trade? Etc.
3rd Stage:
The uncertainty: In this stage traders think of quitting the Capital markets or quit. The reason for this kind of reaction is because the new traders did not get themselves educated in the ways of the Capital Markets. They saw the professionals around them making money and were constantly questioning themselves about their inabilities to deliver. These new traders would have tried a number of systems. Wondered where they could place their stop losses. Tried most of the available indicators…trying to figure out the best indicator. Trying to figure out which techniques of Technical Analysis suited them etc. But in the end it's all to do with the training they never had. This is the singular reason for their built up frustrations and continuous disappointments.
4th Stage:
Accumulating the knowledge: This is the stage where the new trader if not already quit, will make one last ditch attempt to get successful in the ways of the Capital Markets. The Trader will try and acquire the correct knowledge needed, will gather information which will make him successful, will try and get some mentors to direct him in the correct direction. This time around the trader will genuinely try to be around people who know more about the Capital Markets, compared with self. The trader would have understood the importance of surrounding himself with professionals who are successful. The day he manages this, his success is certain in the very near future because his mind-set towards trading is on a positive change path.
5th Stage:
Path of accomplishment: In a quest for success the traders losing mind-set has changed to that of a winner. The trader has become more focused and committed with a deep belief in his abilities and the inevitability of success. The trader by now has more or less developed his own trading system with which he is compatible. Trading by now has become a process and the trader has grown in confidence and outlook. The trader has come to an agreement between self and the market and now listens to the market and its expressions before committing.