(11/26/20) Why Traders Lose and How Traders Win

Most traders, especially those who are new to the business mistakenly believe that in order to be successful all they need is a winning strategy, explains Jake Berstein of JakeBernstein.com.

Unfortunately, this myopic view frequently leads to losses because a successful trading strategy is only one part of the complete package necessary for success. We would think that with faster and cheaper computers, virtually instantaneous price execution, massive research capabilities, artificial intelligence, and most of all effectively zero commissions, it would be easier than ever to make money in trading. However, reality reigns supreme; the average trader fails to succeed. Rarely a day goes by that I fail to hear tales of woe, deep frustration, and confusion from those who sincerely seek to succeed in the highly competitive world of trading.

When I look back on my 52 years in various aspects of market involvement, from trader to analyst to money manager to systems developer and educator I am easily able to identify the cause and effect of trading success and/or failure. I would like to share with you some of the reasons underlying the success and failure of traders.

Although it is true that having and using and understanding a trading strategy are essential elements of success, there is much more here than meets the eye. There is a difference between having a vehicle and using the vehicle correctly. Even the safest of automobiles can become weapons of destruction in the hands of a bad driver. Although you may think I am overstating the obvious consider the following issues regarding trading strategies:

Most traders are unable to correctly evaluate a trading strategy in terms of its efficacy and ability to go forward in real-time because most trading strategies offered to the public are hypothetical
Most traders are unable to determine what rules are necessary in order to effectively implement a trading strategy
Too many traders attempt to use trading strategies that are too risky for their financial capabilities
The vast majority of new traders tend to be highly emotional, frequently making mistakes that are not based on the strategy but on fear or greed
Unfortunately too many new traders are not familiar with proper order procedures and tend to make mistakes that are clerical, which add up to unnecessary losses
Last, but not least, too many traders are unable to consistently follow directions even when their trading strategies are computerized

So, are there any solutions that I can offer you in response to the title of this article? I have explained above some of the reasons that answer the question “why traders lose?”. But how do traders win?

Over the course of my many years as a trader I have developed a list of things that I want to know before I make any trade. Traders who consistently achieve success in the markets are able to determine the following items about every trade they make before they make it. Take some time and study my list. You may, at first, believe that most of these items are not knowable. I respectfully submit to you that they are able to be known. How? We have computers. We have data. We have back-testing capability. If our methodologies are algorithmic or in other words based on rules we can get the answers to virtually all of the questions on my list. I will elaborate on this list in future articles.

Which stock or commodity to trade
Whether to buy or sell that market
The EXACT time to buy or sell short to within one minute or less
Your odds of success
Your average profit and your average loss over many years
Your stop loss or risk as well as your first profit target
The profit/loss ratio of your strategy
The complete track record of your strategy as far back as you can acquire historical prices
Your average profit and loss in points and %
The largest profit or loss this strategy has ever produced
The maximum drawdown
The maximum upswing
The number of consecutive losses
The number of consecutive profits
The accuracy of your strategy in %
How to minimize your potential loss
How to maximize your potential profit
When to move your risk to an effective “zero” risk stop loss
When to EXIT your position