Why Do Traders Fail?

One of the best ways to become a consistent trader is to analyze why traders fail. Understanding the pitfalls that many traders fall into can help you be aware of (and hopefully avoid) them in your trading. In his recent NinjaTrader Ecosystem webinar, Trade With Discipline Manager, TREMPER.com founder Steve Tremper explained some of the most common reasons.

First, traders fail because they don’t have a solid plan for limiting their losses. Sounds basic, right? Yet many traders don’t adequately plan or fail to stick to the plan they’ve established. This lack of discipline can potentially lead to several different errors. It could manifest as over-trading, FOMO-based trading or an abundance of waiting for trades.

All of these issues have the same main root: fear.

“Fear is probably the most significant emotion for traders,” Tremper said. “Fear can demobilize you from applying your hard-learned technical skills”

A trader who cuts a trade too soon might be afraid of losing past profits. Similarly, a trader who hesitates to pull the trigger may be worried about the potential for loss. On the other hand, a trader may hang on to a bad trade for too long because they are afraid to admit their mistake and take the loss. Or they might spontaneously jump into trades that don’t fit their plan because of a fear of missing out if the market moves in their favor.

Tremper says that the key to navigating these emotions is to have the discipline to manage your trading efficiently. He shared four steps to take before entering any trade:

• Define your edge
• Define the risk
• Decide whether or not to accept that risk
• Enter the trade only if the answer to the previous step is ‘yes’

Of course, losing trades are inevitable. However, taking the time to ask yourself these questions can help you slow down, control your emotions and stick to your predetermined trading plan.

To learn more about Tremper’s perspective on why traders fail, be sure to watch this short clip.

If you are interested in a deeper dive into disciplined trading, you can watch Tremper’s full-length webinar free anytime via the NinjaTrader Ecosystem. You can also register for upcoming futures trading events and explore a huge library of free, archived webinars. You can also sign up for email notifications using the form at the bottom of this page.