WHY Most New Traders Fail Within 6-12 months
Till about a year back I used to trade from my own trading office. But on Diwali Muhurat day, I used to go to my broker's office on an invitation from him and participate in Muhurat trading and the festivities. The dealing room used to be full with smart looking guys ( few girls too ) and I used to find them brimming with confidence and talking about tips service, operators,sure shot method etc as if everyone has figured out everything about the market.
But on next Muhurat day the earlier lot of smart traders is missing and we have a fresh lot of traders.Broker used to say " Nayi fasal ayi hai..agle saal tak kat jayegi" meaning new crop has come...it will get cut by next year. I always used to wonder why so many intelligent and smart guys go burst in first 6 months or a year. As I came in contact with more traders, I found tat some of the reasons for this high rate of failure is because of the following :
1) Most come to trading thinking that this is a career for making big money with little or no work....just press F1/F2 and make money.
2) Most people think that their returns will grow exponentially or atleast in linear path. This is not true, there are very good patches in the market and there are also very bad periods or sideways choppy periods where maintaining the same returns is difficult. On has to understand and accept this fact.
3)
Excessive leverage : Most traders blow their accounts due to excessive leverage. They will take positions double or triple in size than what their capital warrants...so small drawdown and they go underwater.
4)
Trading on borrowed capital : After 6 months in the market, people think that they have figured out everything which is required to be known in the market. Hence to increase their profits, they borrow with the promise of 5 to 7 % per month or 60-80 % per annum returns from people and on that borrowed capital . And this is done by not new guys but guys with little experience.
This high returns can be achieved in few good months but no honest business activity can sustain that kind of returns.If it was possible to make those returns, Tata would not put up a factory to manufacture cars or Bajaj would not manufacture motorcycles...they instead will hire a big hall and put up array of computers and smart traders behind those computers.
5) Overconfidence : If you see the record of road accidents, most fatal serious accidents are done not by new learning drivers...but by experienced and overconfident drivers.Similarly accidents in trading are by little experienced and overconfident traders.
6) Markets change and good traders have to adapt themselves to changed market conditions. In driving a car, we dont press the accelerator paddle all the time...we need to use brakes, shift gears to lower gears . To change as per the market needs experience of trading different types of markets.Trader has to use different methods and techniques to trade different types of markets as a skilled craftsman will use different tools according to the job he is working on.
Just thought of sharing these observations so that nayi fasal agle saal tak kat na jaye....
Smart_trade
