There are a number of behaviors that almost guarantee losses in the markets. These behaviors, the antithesis of the way trend followers operate, include:
• Lack of discipline: It takes an accumulation of knowledge and sharp focus to trade successfully. Many would rather listen to the advice of others than take the time to learn for themselves. People are lazy when it comes to the education needed for trading. Think about Bernard Madoff. People just wanted to believe.
• Impatience: People have an insatiable need for action. It might be the adrenaline rush they’re after—their “gambler’s high.” Trading is about patience and objective decision making, not action addiction.
• No objectivity: We are unable to disengage emotionally from the market. We “marry” our positions.
• Greed: Traders try to pick tops or bottoms in the hope they’ll be able to “time” their trades to maximize profits. A desire for quick profits blinds traders to the real hard work needed to win.
• Refusal to accept truth: Traders do not want to believe the only truth is price action. As a result, they follow other variables setting the stage for inevitable losses.
• Impulsive behavior: Traders often jump into a market based on a story in the morning paper. Markets discount news by the time it is publicized. Thinking that if you act quickly, somehow you will beat everybody else in the great day-trading race is a grand recipe for failure.
• Inability to stay in the present: To be a successful trader, you can’t spend your time thinking about how you’re going to spend your profits. Trading because you have to have money is not a wise state of mind.
• Avoid false parallels: Just because the market behaved one way in 1995 does not mean a similar pattern today will give the same result.
