Why Do Most People Fail At Retail Trading?
A retail trader is a person who trades on their own behalf, not on behalf of a business or other organization. A retail trader is someone who trades with their own money, but not for a living. They buy or sell stocks or bonds for themselves (PA).
A professional trader is someone who works for an institution and gets paid to trade other people's money. Institutional traders buy and sell securities for a group or institution for whose accounts they are in charge.
Institutional traders are often pension funds, mutual fund families, insurance companies, and exchange-traded funds (ETFs). Institutional traders can invest in securities like forwards and swaps that are usually unavailable to retail traders.
Individual traders usually don't trade because of the types of transactions and how complicated they are. By definition, the SEC thinks of retail traders as unsophisticated investors who need some protection and can't make risky, complicated investments.
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There are two main reasons why so many people fail and help each other. First, the media and the trading industry spread the idea that it's easy to make money trading and that anyone can do it.
This is not true, of course. In theory, anyone can do it if willing to put in the work and treat it like a business. Almost no one approaches trading with the same level of seriousness as they would any other job.
Let's ignore the first reason, since we can't do much about it. We're not going to change the fact that a big part of the business depends on people being naive.
Besides the first reason, there is a second reason that has to do with people. Most people who try to trade on the financial markets can't handle their feelings and risks well enough to make it through the learning curve.
Managing your own emotions turns out to be hard, and the fact that the market is always changing makes the learning curve longer. One of the things that makes this business so appealing is also the main thing that makes it so hard to master.
After each trading decision, the direct and sometimes violent feedback you get from the market has a surprising effect on a person's ability to keep his mental health in check and control his own actions.
It could mess up your ability to make decisions and make you feel like you have to fight or run away. This makes you trade based on your feelings or when you're angry, which leads to more losses than any other mistake you could make in this business.
Most other jobs have a buffer zone between the decisions you make every day and how they affect your pay at the end of the month. This line of work doesn't. Every little call you make affects your capital right away.
Every small mistake can cost you money, but every good choice can bring it all back and more. This kind of psychological exposure is very upsetting, and it helps a lot to understand how it works.
So psychology is what sets the pro apart. Don't get me wrong, professional traders still have feelings, but they are much more aware of them and able to control them.
The successful trader knows that trading is mostly about how people see things and that everything else just details.
You might wonder how such a high level can be reached. Start by avoiding any market, financial instrument, time frame, trading technique, or any combination that doesn't fit with who you are.
The best thing is to have as little contact as possible with things that can make your demons come out. Always look for plans that make sense to you and fit who you are.
Always find it funny that most learning materials focus on what the market does, when most of the success in this business comes from knowing how to adapt to whatever the market does. And, of course, the other traders are pretty much the market.
Thanks for reading!
