While thousands of posts and articles have been written on why traders are not achieving the success they desire (or worse, are failing), I wanted to point out three quick ideas that summarize behaviors that lead to failure in the market by newer traders.

1. Traders play for large targets and “swing for the fences” and take on too much risk with too little information or knowledge
2. Traders play for small targets when they should be playing for large targets and take on too little risk when odds are on their side and opportunities arise
3. (New) Traders are more likely to be distracted by others’ opinions or their own emotions (overreactions) that occur when taking risk, or just pass on the trade

In a shorter summary:

• New traders take on excessive risk when they shouldn’t
• New traders don’t take enough risk when good opportunities arise
• New traders let their responses to their emotions keep them on the sideline altogether.

Also, newer traders tend to be REACTIVE to market action when they should be PROACTIVE.

They often wait for confirmation of a move before entering, while professional traders – knowing odds are in their favor – enter moves before they begin. New traders are more likely to enter their trades at the end of a move. Watch yourself and try to attempt to move like a professional would, which often is the opposite of what your feelings are telling you to do.

Trading is a game of balance – in this example, between taking on too much risk and leading to failure (through excessive losses) and too little risk (leading to breaking even at best) where your time and risk do not result in profit. There is an optimal point in each individual trader regarding their risk tolerance level and maximum reward point. Success requires finding balance between excessive risk and excessive concern for loss. Only through constant monitoring and good record keeping – including personal observations of your emotions – can we find this balance point.

Sidepoint: I have experienced each of these extremes, as I’m sure nearly all traders have. My fault exists in not taking on enough risk, or staying on the sidelines when I should be in. It was taking on excessive risk (overleveraged) with overconfidence that developed my fear bias through a particularly bloody trade. Fear can develop like a food poisoning experience, where it can be very difficult to get back to where you were before the incident.

Many traders experience initial success, get burned a few times, then come back to the market in a fear mentality. Afterwards, they learn from others, then overcome the fear through small victories, and then the balance is achieved through repeated experience of actually trading the market. It is a difficult process with many pitfalls, but – as anyone can tell you – the rewards are well worth the journey!