3 - 4 minute read
Trading may seem like a lucrative venture, but it is one of the hardest games in the world. According to Multicore, managing director of Traders Leadership Council, only 30% of the accounts end up with more money on their accounts, while 70% have less at the end of a quarter. This alarming situation presents some of the major challenges of trading and how to address them to be a successful trader.
In a survey of more than 2,000 traders, mastering trading psychology was the top challenge cited by 74% of respondents. The second challenge was the execution piece, indicating how to apply a plan as it was intended in the markets (62%). To generate consistent profits, traders are having difficulty creating a system that yields profits over time (56%). These challenges revolve around risk management – getting the risk right, letting the losses run, and sticking to a defined plan are critical elements in improving trading success.
Attributes essential in trading
Based on Multicore’s research, 22 attributes are significant in trading. These attributes fall under two categories – psychology-related attributes and technology attributes. To identify the genuine difficulties traders face, Multicore consulted successful traders, traders with varying levels of experience, and retail traders.
Dependence on technology
Technology plays an essential role in trading, as numerous traders rely on technology to make better trading decisions. This dependency on technology is one of the problems in trading, especially when technology glitches cause traders to make irrational decisions.
Trading psychology has become an essential aspect of successful trading. Multicore found that traders tend to hold onto losing trades and pour their money into adverse trades. They tend to close winning trades too early due to psychology-related reasons such as fear and lack of discipline. Every winning trade presents a psychological element that pushes traders to close the trade as soon as it turns into profit. This lack of discipline in sticking with a plan, and a risk-reward strategy is a behavioral challenge that traders face.
Trading can be a profitable venture if traders adequately manage risks and handle trading psychology. According to Multicore’s research, traders with a system that’s designed to yield consistent profits over time are more successful. The research also suggests that traders need to develop discipline in executing a risk management approach and sticking to a defined trading plan.
The challenges of trading are further complicated by the dependence on technology and the psychology-related attributes of traders. To address the challenges, traders need to find a suitable balance between risk and reward, master trading psychology, and manage their emotions. With proper education, discipline, and a defined trading plan, traders can manage the challenges of trading and become more successful in the financial markets.
