The tale of 100 traders
How long can you hold on for?
100 traders were given a stock pick from a highly reputable trader/advisor. The pick came with entry price, stop loss and method of trail. [His accuracy in the past made him second to none, however very few of his clients can make the sort of returns he does, even though they follow his picks religiously.]
Of the 100 traders that entered the trade (all at roughly the same price), only 5 went on to make double digit returns, and only 1 went on to make a triple digit return. 50 broke even, 40 lost money and the remaining 14 had mixed results but all were less than double digit returns. So what happened?
The fact that one trader went on to make a triple digit return proved beyond a shadow of a doubt that the pick was a good pick. However the perception out there in the trading arena, especially for those with stars in their eyes, is that trading is all about picking winners and finding the ‘magic’ entry technique. This is a fallacy!
You may want to write this down and put it somewhere near your trading station.
‘The ability to maintain discipline and stick to the rules during winning trades is the hallmark of a successful trader’.
The 40% who lost money were trading in fear. Their fear drives them to place their stop way too tight (this is also due to poor money management and not defining what they are prepared to risk per trade), and no sooner had they gone long, the stock took an initial dive, took their stops out and then headed in the called direction.
The reason 50% broke even was because they were too impatient .They saw themselves in a profit and immediately moved their stop to break even. Because they don’t understand the functions of market psychology, they don’t fully understand why prices retrace. The price retraced after the first move up and took their stops out.
The 14% who made single digit returns were either moving their stops too early, too tight, or simply unable to hold on to their trade when seeing a profit (a fear of losing it), and so would just close out their positions. The 5% did the same but on less of a scale.
And so, even with a complete set of rules given to them on how to trade it, most couldn’t. Put simply, all these traders were thinking about the money, and not trading a clearly defined system. Is this you?
Happy Trading
Dean Whittingham
Elite Insiders Group - Trading Systems
Financial Market Fisherman © 2004 - 2007
