Types of Losing Traders

In this posting, I’m highlighting some characteristics of traders who consistently lose in the futures markets so that you can avoid emulating them. Usually a loser will incorporate a combination of the types of attributes listed below.One other thing is that a loser doesn’t know that they are a loser, so will usually not change. Winning traders are those who are introspective enough to understand their own motivations and behaviours, and change them when appropriate.

The Holy Grail trader

The Holy Grail was the goal of King Arthur’s knights, and is now a term for an ultimate but unobtainable goal. The Holy Grail trader spends his or her time looking for the perfect system - the one with minimal drawdowns, high accuracy and few losing trades. If this trader can build systems, he will tweak parameters endlessly, and continue to add extra rules. Otherwise, this type of trader will purchase off the shelf systems, purchase every new book and try out the latest fads, all in the search for the ultimate trading system.Such a system does not exist. Even the best traders don’t have perfect systems. The search wastes time that could be used to make money and learn.The trick is to have a system that you are comfortable with, and that provides positive expectancy.

The chatroom trader

This trader is either in search of the latest tips, or has a burning desire to share their latest insight into the market. They frequent online forums and chatrooms.In both cases, this type of trader is seeking validation from others - either looking for insight from someone else, or wanting confirmation that what they are doing is correct.When a mature trader develops their own systems and trading style, they come to realise that everyone has their own approach to the markets. Good traders are focussed on trading and analysis of the market and their own performance, not hanging out with the herd waiting for the latest tips.

The nervous trader

This type of trader approaches the markets fearfully. He or she may be trading money that they can’t afford to lose. He will close a position the moment that the market moves a few points the wrong way. Any chance profits are immediately realised.The nervous trader will often want to talk to a broker or hang around in chatrooms for confirmation. They have not developed a trading approach that works, or if they have, do not have the confidence to implement it.

The aggressive trader aka the gambler

The aggressive trader is the opposite of the nervous trader. He will go for broke, trading without stop losses. She will take on positions that are far too big and have no risk management approach. This person is characterised by unfounded overconfidence. Typically aggressive in other areas of life, they believe that this will work in futures trading. Often the excitement of trading is more important than winning.They may enjoy some luck, but rapidly consume their trading capital. The saying is “There are old traders and bold traders, but there are few old, bold traders”.

The naive trader

This type of trader has little understanding of the operation of the market, or price movements. They frequently don’t understand the basic mechanics of futures trading, and don’t have a system of their own. Sometimes they will purchase another system that offers unrealistic performance and get burned by it.The naive trader is futures market roadkill. The competition is trading professionals, and they will eat the naive trader alive.The only thing a naive trader can do is get some experience and learn everything possible about trading. This may involve paper trading, reading good books, and observing market action.

The seat of pants trader

I’ve seen some people who are like this, but they are usually not around for very long, so are seldom observed in their natural environment. The seat of the pants trader doesn’t have any sort of system, not even a bad or useless one. They simply guess. Guessing doesn’t work any better in futures trading than it does in any other field.The average lifespan of a seat of the pants trader is very short. I’ve seen some go through their capital in 2 weeks.

Conclusion

Futures trading is potentially very profitable, but does need the right preparation and mental outlook. Losing traders need to learn to transform themselves to survive and prosper. This is a matter of learning about the markets, and above all developing a trading system that works and that you are comfortable with.