The statistics say that almost 90-95% of people in the market lose money. I don’t know the truth of that statement but since we do see a lot of people who have lost money in the market, one feels that the figure may be not too far from the truth. Who those elusive 5-10% are is a subject of another blog perhaps but today I want air a thought or two I had about 90%.
It is not as though people don’t make money in the markets. They do. Reasonably frequently. This is, afterall, what keeps them in the game. The hope that they can repeat what they did at some point of time in their careers keeps them going. The more often they have tasted success the greater that hope. The real reason why that profit does not remain and build is because most traders and investors give it away at some point or the other. They are all like some leaky ship that has eventually to sink and it is just a matter of when and not if. I have done it, you have done it, we have all done it. Why is it so prevalent?
Reasons are many and several of those are a bit deep seated within ourselves. This is not really the space to go into the Why. But a simple thought strikes. If we can somehow manage to plug the leak, could we not become more profitable traders and investors? Most of us are not looking at that area. Instead, we keep looking at newer and newer ways to get to the goal, not realizing that as humans, we are all creatures of habits. And, once the habit of puncturing our own boats to create the leaks has got into us, without eradicating it, anything new would continue to be limited by the old habit!
Stoploss is one way that is advocated for plugging the leak but is it really just slowing down the process of drowning? Again, if the habit of creating the leaks is not eradicated, will it really matter what or how many measures we take to plug the holes later? Greater efficiency, new methods, better information, changing time frames, moving to investing from trading (or vice versa), fresh capital infusion etc are all just pieces of cloth that we shove into the different holes from where the water is seeping into the boat. The basic and perhaps only thing to do is to prevent the leak from happening.
Think about it. Find out where your boat is leaking, what is creating the puncture that lets the water in. Begin your work on it. This learning is part of trading psychology, which, unfortunately, most think they are masters of. Truth is that they don’t even know the concept! Invest some time into that. It will change your results. Dramatically.