About Greed or Is It?
People talk about why most traders lose money when trading. Many traders have assumed a consensus that the main reason is greed. Well, I could buy that theory in the case of over leveraging/over margining accounts. That�™s surely a folly that will lose you money quickly and if it happens to you I hope you consider it a good learning experience and discipline yourself accordingly.
However, most traders who�™ve learned from that experience still lose money…so is it really about greed? I think not. Now, you can take my point of view on this a treat it with a grain of salt but you should not.
You see; it�™s not about greed at all. Most small cap traders would love to have just a little gain every day but nonetheless a consistent gain. You could hardly say that�™s being greedy.
Still traders lose and I�™m not just talking about small cap traders here; so too do macro accounts and hedge funds. To me I have difficulty understanding how, with all of that so called trading knowledge and savvy how anyone could lose as much as billion dollars in one quarter or in one year trading forex…yet it frequently happens.
The word greed has been tossed around here and there but I suggest it has been supplanted by the real reasons, which are any combination of impatience, anxiety, inattentiveness but failure to recognize one�™s one physiological limits is also high on the list. We�™re all humans and have human limitations insofar as our lifestyles and abilities to endure the rigors of staying on top of the 24 hour marketplace are concerned.
Yet there�™s one other reason. Even if you are a machine and don�™t need to be concerned about lifestyle and physiological limitations, if you�™re trading with the wrong information you�™ll still end up losing.
I took a poll some time ago and asked a rather simple question:
Do most traders lose money because of the lack of proper education or do they lose money because despite proper education because most traders are dumb?
The vast majority of responses were that most traders are dumb.
I disagree completely.
As I stated before, even a machine that has no limits on time and no physical restraints can get it wrong most of the time. The reason is not that the machine is dumb. The reason is that the machine has been given the wrong information. Yet people who trade this market are conditioned to believe they are dumb if they don�™t succeed.
Let me make a suggestion to you. I am a person who wholeheartedly disagrees with almost all conventional trading �˜wisdom�™. In fact I think that for the most part it�™s bunk.
Refresh your trading outlook by not focusing on small charts. What I mean is; don�™t expect to make the right decisions from what the smaller interval charts are looking like; they�™ll usually fool you.
Start by going to the daily charts to get a sense of direction. Compare the current sequence with the previous sequence to determine if there is any reason to think that any directional changes may occur.
Once you determine whether trend is likely to resume of not, than go down to the smaller interval charts and locate a dip in the trend if indeed the larger daily charts indicate continuation of trend.
There are so many factors which are risk inducing when trading. Don�™t let your inability to understand the overall direction of flows be one of them.
In summary, it�™s not about greed unless you make it about greed by over leveraging/ over margining your trading account. It�™s about lack of understanding what�™s on the road ahead and whether the road is about to change direction or not. Remember as well; even hedge funds make massive errors. The reason they do is the same as the reason small scale traders make small scale errors; lack of proper direction which stems from lack of proper information. You can execute a trade with stunning accuracy but even the most sharply honed executional skills won�™t get you anywhere if you�™re executing in the wrong direction. Start by understanding in which direction the majority of flows are moving by carefully examining the larger interval charts; hone that skill first and foremost before all else.
Despite its vital importance one of the most neglected areas of trading by new and inexperienced traders is that of trading psychology. Over the next few months we will endeavour to bring to you the best articles and resources concerned with trading psychology to enable you to find ways in which you can control your thoughts and feels so that they do not affect your ability to trade successfully.