Jim Wyckoff has a good article out which looks at the causes of trader failure.
- Failure to have a trading plan in place before a trade is executed.
- Inadequate trading assets or improper money management.
- Expectations that are too high, too soon.
- Failure to use protective stops.
- Lack of “patience” and “discipline.”
- Trading against the trend–or trying to pick tops and bottoms in markets.
- Letting losing positions ride too long.
- Failure to accept complete responsibility for your own actions.
- Not getting a bigger-picture perspective on a market.
I think this is a very good list. I dedicated a considerable amount of my book (and by extension my course) to developing a good trading plan, and many aspects of Jim’s list tie in with the things I talked about there. I have written previously on the subject of “protective stops“, so I won’t go into that again here. You can also see my recent post about traders letting losers run too long.
For me, #9 may be the biggest one of them all – at least for some people. Too many traders want to blame poor performance on someone else.
I will contend with Jim on the trading with/against the trend in #6 as there are systems that do quite well operating in a counter-trend (often called mean reversion) fashion. That, though, is different from trying to pick tops and bottoms, which usually ends in disaster.