| 10 Killer Reasons Why Traders And Investors Fail |
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| Written by Dave McLachlan |
| Thursday, 18 February 2010 15:54 |
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Spend some time with a seasoned trader, and he or she will tell you: there are just some things a trader or investor shouldn't do.
Spend some time with a seasoned trader, and he or she will tell you: there are just some things a trader or investor shouldn't do. That's right - you may know a trader or investor who has made these mistakes and become the "statistic": a recent study found that over 82% of traders made significant losses and closed their accounts after 9 months. For the long term investors it is slightly better, but that doesn't account for the thousands of retiree who had to return to work after the 2008 bear market. That's why I've made a list of 10 major reasons why traders and investors fail in the markets. How can you use this? It's simple - do the opposite of everything on this list, then click the link at the bottom for even more reasons and things to avoid. When you know what to avoid - you can be far better prepared. Ready? Let's get started! 1: They Don't Have A Plan. A trading plan is the fundamental place you should start when trading or investing - and yet many people don't have the time, don't realize the importance of them, or just couldn't be bothered. 2: They can't admit when they're wrong. We are all wrong at times - but the best traders or investors don't have trouble admitting it. They are able to sell out of a stock at a pre-determined point, regardless of how much they love the stock. Forget your ego, and start being ok with being wrong. (Please note... this reason may also be wrong). 3: They haven't outlined solid back-tested rules for entering and exiting. If you were forced to jump off a cliff into the ocean, would you look where you were jumping? Of course you would! So don't jump into the market without looking where you're going - or creating rules and checking them regularly! 4: They think the market will stay "this way" forever. If there is anything that's true about the markets, it is they are ever changing. What works today may not work tomorrow, and today's bull market will become tomorrow's bear. The market will never "stay this way forever". Be prepared, and never stop learning. 5: They over-diversify. Most financial planners will advocate diversification. But the truth is if you are over diversified you become at risk of under performing the overall market. The best investors and traders focus on a handful of great stocks or companies. In fact, it has been proven that between 6 and 12 stocks is optimum, and anything over that, your diversification is wasted. 6: They keep changing their methods. Another down fall of the novice trader - they look for the magic guru method, and when it doesn't work after a few trades they look for the next guru method. And the next, and the next. But a jack of all trades is a master of none (no pun intended). 7: They put too much emphasis on predicting the future. Traders who predict the future find all sorts of reasons to back it up - but when it doesn't turn out like they planned, sometimes it can be hard to stay objective in making decisions. Take forecasts with a grain of salt. 8: They don't watch the trend. Some of my best friends are extremely successful fundamental investors. But even the most successful fundamentalists lost money in 2008 (and some of the best fund managers got absolutely hammered), because they didn't keep an eye on the trend. The stock market will lead the overall economy by approximately six months, so watch for a trend to emerge regardless of company balance sheets. 9: They pay too much in brokerage. Brokerage can have a devastating effect on a small account. If you are using a full service broker at around $60 one way, making 50 trades a year will cost you $5,000. This is a big drag on your account, especially when you are trying to use compounding to grow it faster. Larger accounts are not so bad, but it still pays to be aware of this pit fall. 10: They hound people for tips instead of learning the ropes. How people love tips! Some people will do anything for a "hot tip" in the market. But it's usually at the expense of actually learning the ropes themselves. And if you buy using someone else's tip, when do you sell? DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. For 31 MORE reasons why traders and investors fail visit Dave McLachlan's free site at www.ASXmarketwatch.com. It could save you! |