They say 95% of traders fail, yet every month thousands of new hopefuls take to the markets thinking they have what it takes to be in the elusive 5%. So what is it that makes us think we can prosper in a world where both the talented and experienced fall by the wayside?
I’m not sure if the 95% stat is anywhere near accurate. Over the years I’ve come to think that most things we assume to be true about trading and markets (this stat included) are anything but.
That said, it’s definitely true that huge numbers of people seeking profits in the markets do so with very little understanding of what it takes to achieve success, and the roadblocks that stand in their way.
This isn’t in itself a horrendous thing, after all we are often clueless when we start a new endeavour, the difference with trading however is that people seem to think they are going to strike it rich, and quick.
Here’s how a new trader often sees the markets.
“I’ll likely have to work at this quite hard, I know it will be tough, and I don’t expect to get rich quickly, but deep down I’m hoping I just pick it up real quick, and I’ll make decent to good to excellent money consistently every day. I’ve heard this 95% stat, but I just don’t think it’s me, I just have a good feeling”.
Trading is a pretty esoteric pursuit, so let’s put this mentality into a different context in order to shift perspective a little. Imagine you are about to board a plane, and you 100% know its going to crash.
“This plane is going to crash, I 100% know this. I know if I get on this plane I’m going to crash with it. Historically, maybe 2 out of the 200 people on board are likely to survive, I know that’s likely not going to be me, but deep down I think I’m going to make it, I just have a good feeling”.
Sounds like madness doesn’t it?
Why is it we think we are going to be that solitary person that survives? Why is it we think we are going to be that anomaly that just gets trading or investing straight off the bat?
If you have some edge, some experience or some historically identified character trait that gives some weight to your potential, that’s awesome, but generally speaking the first thing new traders need to do when starting with any form of investing or day trading is radically assess their perspective.
Seatbelts and Life Jackets
So what can we do to increase our chances of survival? The trading equivalent of sitting at the rear of the plane (recently a major airline dropped a bizarre tweet that this was the best place to sit in the event of emergency).
Here’s 5 things I think can really help
1. Spend time getting clarity on what you think markets are, how they work and what you want out of them.
If you are anything like me, your subconscious concept of markets, investing and trading was brought to you by mainstream media. I’m not going to set about beating them up, but they are far from a picture of steady returns and easy bias building.
Read, watch and work at understanding the puzzle of how finance works, I’ll do my best here to help you.
2. Be clear, with no BS how much time and energy you have to give the markets in order to become familiar with them.
Understand its ok if now isn’t the time for you. I’ve had periods where I’ve been trying to cram way too much into life, and trading wasn’t paying so ultimately it was the thing I had to step away from. This isn’t permanent, but you need to be clear on your responsibilities.
If we aren’t grown up about the facts of if we have time for trading, the stress it will induce will prevent you from succeeding.
3. Don’t kid yourself about your bankroll
Just don’t. I’m not saying you need millions to trade or invest, but if you’re battling consumer debt, bills or just a hefty mortgage you need to have a rethink. Personally, I don’t see an issue with small accounts, provided you understand the impact of fees, margin and have a clear understanding of reasonable returns.
4. Work on mindset and perspective
Maybe the most important. So far I’ve earned very little from trading. My understanding of human psychology, interaction of market particpants and mindset has been invaluable. During fruitless sim trading periods this is actually what kept me going — I was learning a stack about myself and what made me tick.
5. Build time in your schedule to stop, step out of the rabbit hole and ask yourself if your perspective is skewed.
You’d be amazed at how easy it is for an isolated retail trader to wander off down the garden path worrying about elements of trading and finance that either don’t matter, or are the complete opposite of what is stopping them succeed. Stop obsessing about entry and method, at the start take time to think about perspectives.
Above all else — remember you are in the long game, you might get it overnight but in all likelyhood you won’t. Make peace with that and just try and enjoy the ride.
Long term investing is fun, trading is a rewarding pursuit, but both can become stressful really quick if you loose perspective. You’re not in this game to hit the jackpot overnight, you’re in it to win over the long run however you end up doing that. Ultimately I think the journey is worthwhile, but if you know the plane is going down, maybe just catch the train.