Are you insane?

The intention of this article is not to insult anyone but to highlight one of the main reasons why people get mediocre results in trading.

Albert Einstein defined insanity as “doing the same thing over and over again and expecting different results”. It’s amazing how many people want a different result in various areas of their life but are not ready to make the change from within. People want to succeed but are not ready to put in the extra effort/sacrifice that it takes to succeed. One of the dictionary entries for insanity is “extreme foolishness”. i.e. something that is extremely foolish.

How does the theory of insanity apply to trading? According to research, more than 90% of traders loss money. The accuracy of this figure has not been established, however, it’s a fact that more traders lose than win. Most new traders get whipped out within their first year of trading. The reason most of these traders failed is not because of a lack of methodology, but because they failed to address certain habits or psychological issues that are detrimental to trading. For example, one of the ways of using MACD is to go long when the histogram crosses above midline. Some traders that use this method have a habit of buying just before MACD crosses the midline, and end up on the wrong side of the trade and loss money. They do this time after time and get the same result. A lot of people rather than change their approach would do the same thing over and over again and expect to get lucky. Although they might make a profit on a few occasions, it’s most likely they’ll lose overall. This is extreme insanity. Although according to Jesse Livermore, everyone makes a foolish play on the market, that’s temporary insanity, just like everyone has a few minutes of madness every day. It’s when making foolish plays becomes the norm in a trader’s activity that it becomes insanity.

According to Rob Gilbert "First we form habits, then they form us. Conquer your bad habits or they will conquer you". If you have gotten into the habit of making foolish plays (synonymous to gambling), please stop now before it destroys you. It’s not going to be easy to drop a bad habit, but believe me it’s possible. Don’t wait till the water runs dry before you commit to making the change. The market is a global place, traders come and traders go. If you compare trading to a career in the military, most traders end their careers as recruits, some make it through to captains, while only a few make it through generals. Those that make it through to the general grade are those that are able to demonstrate a high level of self-discipline. If you want to turn your trading around you need to identify the changes you need to make and have the discipline to implement the changes. Do it today as you might never get another chance.