In the previous post we looked at the foundation of wealth building – Your Wealth Creation Blueprint (plan). We also examined the importance of setting measurable investment objectives and the need to avoid trading strategies that are incompatible with your personal level of risk tolerance.
In this post we’ll examine three more reasons why you’ll never be profitable as a trader or investor:
- Believing it’s all about being right
- Never mastering the skills and knowledge required to be profitable
- Being oblivious to the of ‘mental-baggage’ they carry
4. Believing it’s all about being right
Whether it is trading or investing for beginners the journey often starts in the same way. There is a belief that success lies in finding the perfect system. It is a blight the many unprofitable traders and investors carry, the thought that success in trading and investing lies in the ability to always be right.
They equate success in the stock market with the accuracy rate of their trading strategy. They believe if they have more winning trades than losing trades they’ll end up ahead. They focus solely on being right.
The ‘curse’ of having to be right is something that is thrust upon us at an early age. We have been conditioned on the importance of being ‘right’ throughout our lives. In school, at work, even in our relationships there is the endless push towards perfection and being seen to be right.
Unprofitable stock traders and investors focus on finding the perfect stock trading system because they fail to appreciate what really makes a trader or investor profitable. They believe the answer lies in finding the perfect trading strategy or always picking the right stock or entering at precisely the right entry price.
Nothing is further from the truth.
Profitability is achieved through having an awareness of yourself, your biases and your risk tolerance. It also requires a trader or investor to understand the importance of expectancy and the probabilities of trading and how these factors impact on their efforts to be profitable.
Profitable trading and share investing is not about being right, it is about managing the losing trades to ensure that they do not balloon out of control and destroy your trading capital.
To do this consistently the trader or investor needs to understand the likelihood (or probability) of experiencing a series of losses for their chosen trading system, they also need to appreciate their maximum drawdown ‘threshold of pain’ and finally they need to comprehend how to achieve profitability through positive expectancy.
5. Never mastering the skills and knowledge required to be profitable
The fifth reason is an extension of the previous point. Traders and investors never achieve long term profitability because they either stop growing, or worse still, never manage to grow and mature as an investor or trader.
They remain stagnant as a trader or investor because they never adequately enhance their skills and progress their knowledge beyond an intermediate level.
Achieving profitability is about mastering the skills, knowledge and mindset of a profitable trader or investor. It requires the discipline to continually strive for improvement and the persistence to soldier on despite the set backs.
Investors and traders who succeed over the long term never cease learning. They understand the importance of continuous improvement. They analyse their trades, learn from their mistakes, identify areas in need of improvement and seek ways to overcome those deficiencies.
They understand that to be profitable they must recognise their strengths and weakness and they must take their personal development to a higher level – the level of a master.
How do you stack up? When was the last time you analyzed your trades. When was the last time you enhanced your skills or knowledge?
6. Being oblivious to the ‘mental-baggage’ they carry
Unprofitable share investors and traders are generally oblivious to the normal decision making biases we, as humans, are often influenced by.
We are all venerable to biases; they affect our thinking in many ways. At the extreme are examples of human bias towards certain religions or nationalities, at the other end of the scale is our bias towards our favourite sporting team. Some biases are more destructive than others
From a trading and investment perspective these biases are often a ‘silent killer’. If the trader or investor is unaware of the subconscious thought process taking place in their mind, they can easily find that these biases are sabotaging their decision making process and affecting trading outcomes on a regular basis.
Preconceived biases affect your decision making by tainting your judgment which leads to poor decisions. The two most common examples of tainted decision making are:
- Stay in losing trades, and
- Exit winning trades too early
Unprofitable investors and traders nearly always hold on to a losing trade long after the initial ‘stop’ is triggered. They believe that a losing position is not a loss until the position is closed out. They cling to the hope of one day breaking even because their decision-making is tainted by the psychological bias or need of always having to be right.
As we are all aware, ‘not cutting your losses’ is one of the cardinal sins of trading and it is a process that is repeated many times over by unprofitable traders and investors. But the pain and suffering doesn’t end there…
These same traders and investors are also more likely than not to commit cardinal sin number two – ‘not letting your profits run’. They will make the decision to exit a winning position far too early because their decision making is tainted by the fear or need to avoid loss.
Unprofitable traders and investors are oblivious to these biases and because they are unaware of the root cause of the preconceptions affecting their decisions they repeat the same mistakes over and over again.
What ‘mental baggage’ is affecting your trading and investment decisions?
If you would like more information on decision making biases, stock market investing or what separates profitable traders and investors from the rest, take the simple step NOW to SIGN UP for my FREE E-Course ‘Mastering Profitability’. Its 30 days that could change your life….
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1. Sign up for the FREE E-Course. Just enter your first name and primary email at the top of this website.
2. Tell me what biases affect your trading or investing and how you solved the problem.
