Why Then Many Traders Lose

Here are a few observations on why as well as then many traders fail.  It’s non because of psychology:

1)  The bulk of traders retrieve directionally, as well as they retrieve linearly.  That has them trading momentum as well as that has them trading trends.  Even the traders who await for reversals await for momentum as well as trend, simply inward a dissimilar direction.

2)  Market demeanour tin sack endure described every bit a combination of cyclical as well as linear (trend) components over whatever item fourth dimension frame.  As markets decease to a greater extent than crowded, cyclical components dominate over time, reducing the Sharpe ratio of those markets.

3)  Traders neglect because they are thinking inward direct lines when they should endure thinking inward cycles.  They retrieve of cycles every bit sources of choppiness as well as noise, non every bit sources of signals that are dissimilar from linear, trending ones.

4)  Any marketplace bicycle consists of mean-reverting demeanour at bicycle peaks as well as troughs as well as trending demeanour betwixt peaks as well as troughs.  This ensures that whatever unmarried approach to trading markets (looking for trend/momentum; looking for reversal/mean reversion) volition pull downwards substantially over many cycles.

5)  When the populace was establish to endure circular as well as non flat, that opened the door to exploration as well as evolution of novel lands.  When markets are viewed every bit cyclical as well as non linear, that opens the door to promising trading strategies.

6)  A slap-up bargain of the emotional frustration as well as disruption of trading that traders come across is the effect of trying to tally markets into a preferred framework, rather than discovering the framework that best describes marketplace behavior.  

7)  Becoming to a greater extent than disciplined inward applying inappropriate models to markets leads to greater consistency inward losing.  If a ladder is leaning against the incorrect building, becoming a amend climber won’t instruct y’all to your destination.

In short, traders lose, non because they’re bad at the game, but because they are playing the incorrect game.

Further Reading:  Finding Opportunity inward Cycles
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