Why Most Traders Fail - Trading Secrets Revealed
by David Jenyns, Professional Trader, Author & Coach

It's no secret that 95 percent of all traders end up going broke within the first two years of their trading career. Why do they lose all their money? What are they doing wrong? I'd like to put forward the idea that it's because they don't treat trading as they would any other business endeavor.

Every successful business I've ever known has had a business plan. It has had a set of rules and guidelines that is followed. Yet, when most people come to the market they fail to put a business plan into place. Instead, they end up going on an emotional roller coaster, governed by how their shares are performing.

With no business plan, the majority of traders approach the market in an inconsistent manner - i.e. they follow whims. One day they trade stocks and the next they trade the foreign exchange. Similarly, they may use one set of indicators one day, and the next day they'll throw these indicators out the window and take on a completely new set. Unfortunately, with no consistent approach, and having their trading decisions governed by emotions, most traders are doomed to failure… here's why.

When traders are faced with a losing trade what do they do? Usually, they end up rationalizing why they hold that stock and why they should continue to do so. The driving force behind this is that they don't want to be wrong. They let their ego get in the way of making profits.

Let's set the record straight. You will not get every trade that you enter correct. You will not make the maximum profit out of every trade. There is no Holy Grail trading system! However, most people, don't like to be wrong. So, what they do is rationalize why they're holding that losing stock. As the stock continues to fall, they'll make more excuses as to why they should hold on.

You may have been guilty of this in the past - I know, I have been. But, it all changed for me when I put excellent money management into place. No longer did I say to myself, "I'll just hold on a little bit longer, and wait until it gets back to where it was last week." No longer did I make up reasons for continuing to hold stocks as the price declined excessively. This was the type of thinking that was costing me big bucks.

Not only was it costing me in losing trades but it was also eating away at my profits too. For example, when a stock price moved into profit… I sold too early. I wanted to crystallize my profit straightaway. I saw the profit as mine, and I didn't want to give it back to the market. The result was that I ended up selling the stocks that were making me money.

Now when you combine those two emotional reasons for holding onto a stock too long and the reasons for selling a stock too early, you can see I was breaking the two cardinal rules of trading. And those rules are: "cut your losses short and let your profits run."

Why do most traders break these rules? Quite simply they don't have the correct business plan. When I talk about a trading business plan, I'm not talking about fundamental analysis or technical analysis specifically. I'm talking about just simply a set of guidelines that you follow regardless of what stock selection method you use.

In fact, through a study of successful traders, I have found there are a lot of different methods for entering stocks. I've seen people use technical analysis. I've seen people use fundamental analysis. I've even seen people use astrology to determine when they buy stocks. Despite these varied entry methods one component remains the same amongst successful traders… they all have excellent money management! These are the rules that have led them to great fortune in the markets.

In fact, almost every successful trader cites money management as the essential component to their success. It's what determines how profitable you're going to be. You'd be well advised to spend time studying this area of trading.

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The path to accelerating and enjoying the learning process requires us to see success and failure as equally instructive and valuable.
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