The largest academic study ever conducted on day traders and swing traders revealed that most lost money …. even during a raging bull market! Only 4% were able to make significant profits two years in a row.

What do you make of this? Are 96% of traders below average in intelligence or motivation?

On the contrary. Over more than a decade of coaching, I’ve found that aspiring traders are among the most intelligent, motivated and hard-working individuals I’ve ever met.

Instead, I suspect the following is true: Although markets are constantly presenting us with fantastic profit opportunities, they are even better at fooling most of us so that we behave in ways that preclude those very opportunities.

Is this self-sabotage? Fear of success? A hidden wish to fail? I don’t think so. The struggles of most traders arise from the exact opposite cause:

In trying to do the right thing we inadvertently make matters worse because the trading environment itself turns our own reward-seeking and self-protective instincts against us.

TRADING IS CHALLENGING

Trading for a living is much harder than it first appears. Few are mentally and emotionally prepared for the randomness they encounter in the trading environment. There is a saying that goes: “Doing the same thing over and over and expecting different results is the definition of insanity.”

Well, in trading, it’s the definition of normal.

We constantly get tricked and trapped due to surprise movements in the market. The breakout fails; the pullback turns into a falling knife, the nascent trend we jumped on fizzles out and becomes a chop fest, etc. Our #1 job as traders is to be consistent in our own behavior even as we encounter very different results than we expect. This is a skill few have practiced in daily life, so it is easy to get frustrated, discouraged, risk averse, angry or simply marginalized.

Over the next four weeks I’ll discuss four ways in which our basic instincts get in the way of successful trading. As a hint, I’ll just suggest that we don’t want to follow Malcolm Gladwell.    

[Please tune in each Wednesday for Dr. Kenneth Reid’s  weekly trading coach column: The Dr. Is In. Got questions? Post a comment for Dr. Reid below. ]