Don’t Become a Casualty of the Markets

09/23/2011 8:30 am EST

Focus: STRATEGIES

Darren Miller

Founder and CEO, Psychtrader.com

Only a small percentage of traders are able to achieve success and longevity in the markets, and Darren Miller reviews common pitfalls of most traders and tells how to combat them.

I’m speaking with Darren Miller, and Darren, let me ask you about why traders fail.

I think a lot of people that enter the trading profession are lured by a myth or an aura that it’s easy to make money in the market. “Buy low, sell high,” and so they enter in thinking “How difficult can this be?” 

We saw a lot of that in the dot-com bubble. Everybody was trading stocks, and we saw how badly that ended. 

I think a lot of people come into it unprepared. They’re just not ready to participate in the market at a level that is required.

Trading is a skill-based profession, and just like any skill-based activity, you need to work on those skills, and it’s not easy. I can’t pick up a basketball and go play for the Dallas Mavericks; that’s just not going to happen.

Maybe you can go play for the Heat!

Yeah, I can, maybe I can get on the Heat, no question there, but you know, it’s something that’s going to require a lot of effort and a lot of time, and also a lot of capital. 

You need to have the capital there. There is…I call it tuition to the market. You need to be well-funded in order to participate.

If you take into account the fact that it’s not that easy and have some capital set aside that’s there for you to trade, you can be successful, but for the most part, I think people come unprepared thinking its easier than it actually is.

Like the old joke “How do you make a small fortune? Start with a large one.”

Exactly.

How can we avoid doing that? What’s the biggest mistake they make?

I think one of the great things with advancement in technology that we’ve seen over the last three or four years is being able to go back and replay market data. Basically simulate what’s going on and test your strategy.

Like backtesting?

Not so much backtesting, but saying “This is my strategy, this is my set-up, let’s see how it works today,” and treating it like it’s real time, not just running a backtesting program to see the win ratio, but more to get a gauge, get some biofeedback as I feel my heart rate increasing. 

Am I sweating, am I nervous because there’s money on the line? You can go ahead and do that time and time again with the capability that we have in technology today, and that will really lessen the learning curve for entrance into the market.

Will it lessen those emotions; will it stop me from shivering or sweating?

Not so much, no, but what it does do is it makes you aware of those emotions, and those emotions are fine.  Actually, they help you to be successful in the market. They keep you alert and on task.

The place where people get into trouble is if they have aspects of their life outside of trading and they’re focusing on those, and the emotions from that are impacting their ability to focus on the market.

And they’re probably not aware of that.

Most of the time they’re not. It’s on the subconscious level, but it definitely plays out in their market participation.

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