95% Of Retail Traders Fail. How Can You Succeed? 1
About 95% of retail traders lose money.
While the statistics are daunting, it doesn’t mean that trading/investing is a fool’s game. What it does mean is that it is extremely difficult to do well in markets.
Which begs the question, how do we become better traders?
Even though a lot of people use the statistic as a means to discourage or scare new and inexperienced traders/investors from participating in markets, the truth is that at some point in our lives, we have to make our money start working for us and earning some kind of return in order to fund retirement.
This means taking some kind of financial risk through trading or investing. That is, participating in some kind of market; stocks, bonds, currencies, real estate, cryptocurrencies, etc.
Which brings us back to the 95% number.
If most of us don’t have a choice and must invest our money at some point, viewing the 95% number as a scare tactic isn’t very constructive.
Instead, we can think of it from a far more useful perspective: If 95% of retail traders lose money, then we must not do what they are doing.
Put simply, the 95% statistic tells us that we need to look at how the majority thinks and acts, and then do the opposite (or at least something different).
The first, and arguably most important concept we must understand is that trading is not a battle between us and the markets. Rather, it is a battle between us and ourselves.
While this perspective runs counter to popular belief , remember the whole point of this exercise is to identify concepts, opinions, and beliefs which most people hold to be true, and then figure out if the opposite is actually true.
The easiest way to see that trading is a duel with ourselves is to recognize the shortcomings of our human minds in relation to the activities central to trading and investing; taking risks, making losses, and managing gains.
These natural shortcomings are known as cognitive biases, which naturally lead us to behave in ways that cause us to become unprofitable traders, as clearly illustrated by the high rate of failure.
As a matter of fact, the 95% statistic itself demonstrates a key cognitive bias that plagues traders, called the optimism bias.
Any novice trader/investor who bothers to do even cursory research into the field will quickly come across articles and studies that show that the majority of retail traders end up losing money.
Yet more and more folks keep signing up for new brokerage accounts. Why?
Simply because most of them believe that the statistic applies to everyone else, and not themselves. Of course, this blind optimism never works out and they end up being in the 95%!
This is also the best place from which to begin your journey on discovering how to be a better trader – knowing that the odds are severely stacked against you, and that the greatest struggle in trading and investing is not against the market, but against yourself.
As such, the first step is to get to know yourself.
To be continued…
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