Top 6 Reasons Why Traders Lose Money

Rockwell trading really has a lot of great information that I've found useful and Markus' style resonates with me pretty well. Plus, he has a very sexy accent. Okay, that aside, back to business.

He lists the Top Six Reasons Why Traders Lose Money:

1. Lack of a Trading Plan
2. Lack of Discipline to Follow the Plan
3. Failure to Control Emotions
4. Failure To Accept & Limit Losses
5. Lack of Commitment
6. Over Trading

Let me address each of these from my own personal experience. By the way, I agree with him on all these.

1. Lack of a Trading Plan -- Up until mid-last year, I never had a real trading plan, at least not a detailed one. Though I had success in trading, keeping the money was a huge challenge. As I went through a nasty separation & divorce, this was imperative to have a good trading plan. I can't remember where I got my template for my trading plan, but it was something like starting out with 25+ pages of this. It took so long to fill out, but gave me a good idea of the right conditions to trade. This is like a business plan. How does a business succeed without a good plan in place? This must be written in detail and nothing left out. If you are vague, this leaves room for error. If you want a template for this, let me know and I'll forward one to you.

Also, your trading strategies would be listed & detailed in your trading plan. This would include setup, when to take entries & exits (profits & costs).

2. Lack of Discipline to Follow the Plan - This is a huge one for me that I still deal with. Originally when I had all my stuff written out, my strategies were so complicated, that I kept not following my strategies. Not good. This led to errors. Sometimes I would take big profits, but I also incurred BIG costs that often wiped out the profits and then some. If it didn't, the only one that really made money was my broker from all the commissions of the trades.

If your strategy says to execute the trade, do so, otherwise, don't. Do what it says.

3. Failure to Control Emotions - As I mentioned before, going through the personal relationship issues that created financial issues really has been quite emotional. To say to get rid of emotions is not realistic, so I've spent a great deal of time and money to get this under control. Still working here. This has caused me to really lose a lot of money in the market.

Sometimes when you incur a cost or two, then you begin a downward spiral of more costs, so you really have to have a system in place to manage your emotions. This should be spelled out in your trading plan. For example, if you're going to court that day on a fairly emotional thing, it's probably best to limit trading or not trade at all.

4. Failure to Accept & Limit Losses - I call this "hoping" which makes us really getting into a "doping" mode. I know of no successful trader that always make profits. Though my percentage of profitable trades is overall high in the 75-85% usually, I still make costing trades. I found that when I was not willing to accept & limit my costs, they became HUGE.

This also must be spelled out in your trading plan. You may say if the trade goes against me 10% you're out. Others have other criteria. Whatever that is, you gotta abide by that. A part of this is taking into account that you don't know truly what the market is going to do, so you must be prepared for if it goes in your favor OR if it does not and be okay with this. If you're not, don't trade.

Friday was a good example. I made 1 really nice profitable trade, however, the next trade took out 2/3rds of that profit. The next 2 trades, I was a bit nervous and for a period of time, it looked like they would be costs also. Profit & cost stops were set and things were getting real close to getting stopped out for cost stops on both positions. That would've not only wiped out my profits, but some of the day before's profits. However, that was the nature of those 2 trades.

If I recall correctly, it came within 2-3 ticks of being stopped out and I was really nervous. However, that was a part of my strategy and I was sticking to it. The one flaw I made was that it played around for so long getting nearly stopped out for costs, that I felt exhausted. I ended up moving my profit stops IN closer to get stopped out quicker. Had I just perhaps just walked away from my computer and just left things alone, my profits would've been double/triple what I actually got. Yes, a profit is always good no matter how big or small.

So, in this time, I did not follow my trading strategy and ended up with smaller profits. My error. This plays into the bottom line.

5. Lack of Commitment - This is something that I continually work on. Sometimes it seems I'm so committed to what I'm doing when I don't have a lot of distractions. But, throw in children, school, dogs, moving, working out, friends, etc., sometimes the fact of being able to trade any time can cause a person to lack commitment. I had to set on my schedule every day that I would trade, even if it's just one trade. Now, I do have a daily monetary goal, and that really helps me be more committed.

For a long time, I would allow people to call, IM me or something. But, starting at least 6 months ago or more, I told people to not call unless it's an emergency. It's helped so incredibly much. I don't answer emails or rarely chat or do many other things that distract me.

Set goals here, starting with small achievable ones. As you accomplish those, make them bigger. Achieve success with the next goals and keep changing, etc. I find that usually I have to put things on my calendar, so I will follow through.

6. Over Trading - I'm still working on this. I have often not completely followed my trading strategy, micro-managing, as I've had many trades ALMOST get there, but found that it doesn't get THERE to my target to reverse, so my mindset is take what I can and go back for more. As my trading account gets bigger and handle taking some hits, maybe my confidence will increase so I allow things to go its full course.

However, this is where I need to continually improve on my trading strategies so that if my strategy is telling me to get in too early or too late, that I make these adjustments.

Over trading leads to excessive commissions. I'm guilty of this. Scalping would be, I would guess, is overtrading.

Here's Markus' 35 min. video on this and more:
http://www.rockwelltrading.com/hsc-sample-5

BTW, I'm just agreeing with Markus and putting my own experiences here.
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