I talk a lot about trading psychology on this blog and in my books because, after three decades in the markets, I know it’s the difference between success and failure, says Steve Burns of New Trader U.
The world’s best athletes are all in peak physical condition; what separates world champions from everyone else is their mental toughness, self-control, and discipline. This blog article will look at five reasons you may struggle to make money in the markets and what you can do to be happier and more successful.
Five Reasons Your Trading Account Is Underwater
- You’re not ready. You’re underfunded or not in a good financial space.
- You haven’t done the homework. You don’t have a trading system.
- You aren’t disciplined. You don’t have a trading plan or aren’t sticking to it.
- You keep making the same mistakes. You aren’t learning and growing.
- You’re doing it for the wrong reasons. Trading is a job, not a game or a get-rich-quick scheme.
1. You’re Not Ready
You may struggle to make money in the stock market because you aren’t ready. This could be due to a lack of funding to execute your trading system properly or not being in a good place with your finances. Trading and investing in the markets require certain financial stability and resources. Without enough money to invest, making significant market gains is difficult. Additionally, if you’re struggling with personal financial issues, such as high debt levels or a lack of savings, focusing on making money in the stock market can be challenging because you could be approaching it with the wrong motivations.
2. You Haven’t Done Your Homework
You may struggle to succeed in the markets because you don’t have a trading system or a definable edge. A trading system is a set of rules and guidelines that dictate when you do something and why you do it. A trading system allows investors to make objective decisions based on predefined criteria rather than emotional impulses. Buying and selling stocks based on emotions can be easy without a trading system, leading to costly mistakes.
Not having a trading system can make tracking and analyzing performance difficult. A trading system provides a framework for evaluating the success or failure of trades and can also help identify patterns or trends in the market. Without a trading system, it can be challenging to determine what is working and what isn’t, making it difficult to adjust or improve the investment strategy. For a trading system to be profitable, it must have an edge that makes the average win bigger than the average loss.
3. You Aren’t Disciplined
Another reason someone may struggle to make money in the stock market is because they lack discipline. This can manifest in a few different ways, such as not having a trading plan or not sticking to it. A trading plan is a detailed roadmap that outlines trading signals, position sizing, and strategies for managing trades as they play out. It serves as a reminder of why the trader is in a trade. It can be easy to get caught up in the excitement of the market and make impulsive decisions without a plan. And you will have problems being successful if you have a plan but lack the discipline to follow it or are easily overwhelmed by your emotions.
For example, if a trader’s trading plan calls for them to hold a stock for a certain period, but they sell it prematurely due to fear of a market downturn before the stop loss is triggered, they are not sticking to the plan. This can lead to missed opportunities for gains. A lack of discipline could also mean not following a stop-loss when triggered, resulting in big losses.
To be successful in the markets, it’s essential to have a trading plan and stick to it. This requires discipline and the ability to control emotions. A trading plan should be reviewed and updated regularly to maintain a good risk/reward ratio based on the price movement of the trade. Discipline should be maintained to ensure that the plan is followed. By following their plan, traders can increase their chances of being profitable with their overall system.
4. You Aren’t Learning
Another reason someone may struggle to make money in the stock market is that they keep making the same mistakes. This can be due to not learning and growing as a trader. Trading in the market is a continuous learning process, and you must be willing to manage changing market conditions with consistent signals. Without learning and growing, an investor will likely repeat the same mistakes, which can be costly.
For example, traders may repeatedly make impulsive decisions based on short-term market fluctuations instead of taking a long-term perspective on their trading system. Or, a trader may not diversify their positions enough, exposing them to too much-correlated risk. These mistakes can lead to significant losses, and the same mistakes will be repeated without learning from them.
To succeed in the market, continuously learning and growing as a trader is essential. This can be done by staying informed about market conditions and trends, reading books and articles, and seeking guidance from experienced traders and financial educators. Additionally, reviewing past trades and decisions is important to understand mistakes and what could have been done differently. By learning from past mistakes and continuously growing as an investor, one can reduce the chances of making the same mistakes again and increase the likelihood of making money.
5. You’re Doing It For The Wrong Reasons
Another reason someone may struggle to make money in the market is that they are doing it for the wrong reasons. Trading should be seen as a job, not a game or a get-rich-quick scheme. Treating it as a game or gambling can lead to impulsive and reckless decisions, resulting in significant losses. And treating it like a lottery ticket or a way to make easy money is a recipe for disaster. The risks to capital are real.
Some people may view trading as a way to get rich quickly without realizing that it requires significant time and effort. They may see it as gambling, buying and selling stocks based on emotions or insider tips without proper research or a solid trading system. This approach is unlikely to be successful in the long run and is a sure way to lose money.
Some people may be motivated to trade due to its excitement and thrill. They may enjoy the rush of buying and selling without considering the potential risks or consequences. This approach is not sustainable, won’t lead to long-term success in the market, and may lead to financial ruin for your account and mental ruin for your enthusiasm for the markets.
What If You’re Doing Everything Right And You’re STILL Down?
If you’ve through the list and are saying, “Hey, I did everything correctly, and I’m still down, what about that?” It’s important to note that the last few years have been extremely volatile, and many of the world’s leading investors, traders, and money managers have had down for over a year or more. Downturns are inevitable, and sometimes it’s a matter of staying afloat until the next wave higher. If you’re doing everything correctly and are following your strategy and trading plan with discipline, you’ll be prepared to catch that wave and be profitable when the opportunity presents itself.
The main reasons you can feel like you’re doing everything right and still be in a drawdown are the following:
- The market is not conducive to your trading system at this time due to the extreme price action.
- You have no quantified edge with your system.
- You’re trading the wrong type of strategy for the current market environment.
- You’re trading too big of a position size leading to big drawdowns.
- You didn’t backtest your system over enough of a time frame to understand the risks during a bear market.
To be successful in trading the markets, it’s essential to approach it as a job and a professional endeavor and to take a disciplined, strategic, and long-term approach. This means researching, developing a solid strategy, and managing risk effectively. Treating trading as a job and not a game can increase the chances of making money in the stock market.
Learn more about Steve Burns at NewTraderU.com.