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Why Traders Fail

Many are stubborn in pursuit of the path they have chosen, few in pursuit of the goal.- Friedrich Nietzsche From his book In search of the human mind, Robert Sternberg has an excellent numbered list titled Why intelligent people fail. The striking thing is, the list could be titled Why Traders Fail and be just as dead-on accurate. Here are the first three entries (out of 20 total): 1. Lack of motivation. A talent is irrelevant if a person is not motivated to use it. Motivation may be external (for example, social approval) or internal (satisfaction from a job well-done, for instance). External sources tend to be transient, while internal sources tend to produce more consistent performance. 2. Lack of impulse control. Habitual impulsiveness gets in the way of optimal performance. Some people do not bring their full intellectual resources to bear on a problem but go with the first solution that pops into their heads. 3. Lack of perseverance and perseveration. Some people give up too easily, while others are unable to stop even when the quest will clearly be fruitless. (Perseveration is a real word by the way. If you had to look it up in Google, dont feel dumb. I did too.) Relentless Resourcefulness If I had to give a very short-hand explanation as to why the majority of traders fail, I would start with that quote from good old Nietzsche: Many are stubborn in pursuit of the path they have chosen, few in pursuit of the goal. At the end of the day, the typical would-be trader is sabotaged by ego. The learning and adjustment process winds up being too painful Whaddaya mean Im wrong (again)? Whaddaya mean Im a beginner? and so the quest is abandoned for the sake of preserving a fragile self image. As Nietzsche observes, rare is the man (or woman) willing to fail forward, not giving a damn about ego, but instead observing and adapting at every turn, learning from setbacks while keeping an eye fixed firmly on the prize. If I had to give a quick explanation of what makes a new trader succeed rather than fail, I would again borrow anothers words and call on the phrase relentless resourcefulness, from venture capitalist and technology writer Paul Graham. Most dictionaries say hapless means unlucky. But the dictionaries are not doing a very good job. A team that outplays its opponents but loses because of a bad decision by the referee could be called unlucky, but not hapless. Hapless implies passivity. To be hapless is to be battered by circumstancesto let the world have its way with you, instead of having your way with the world. What would someone who was the opposite of hapless be like? Theyd be relentlessly resourceful. Not merely relentless. Thats not enough to make things go your way except in a
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few mostly uninteresting domains. In any interesting domain, the difficulties will be novel. Which means you cant simply plow through them, because you dont know initially how hard they are; you dont know whether youre about to plow through a block of foam or granite. So you have to be resourceful. You have to keep trying new things. Be relentlessly resourceful. - Paul Graham. Relentlessly Resourceful Trying new things, of course, doesnt mean embracing a new trading methodology every five minutes. (Thats what you call Grail-itis, or Holy Grail Syndrome.) Instead it means a sort of flexible perseverance a willingness to stick with hard problems while looking for new and creative ways to solve those problems, constantly adjusting and fine tuning the angle of attack. Here is the Sternberg list in full (hat tip Michael Anissimov). Why Intelligent People Traders Fail 1. Lack of motivation. A talent is irrelevant if a person is not motivated to use it. Motivation may be external (for example, social approval) or internal (satisfaction from a job well-done, for instance). External sources tend to be transient, while internal sources tend to produce more consistent performance. 2. Lack of impulse control. Habitual impulsiveness gets in the way of optimal performance. Some people do not bring their full intellectual resources to bear on a problem but go with the first solution that pops into their heads. 3. Lack of perseverance and perseveration. Some people give up too easily, while others are unable to stop even when the quest will clearly be fruitless. 4. Using the wrong abilities. People may not be using the right abilities for the tasks in which they are engaged. 5. Inability to translate thought into action. Some people seem buried in thought. They have good ideas but rarely seem able to do anything about them. 6. Lack of product orientation. Some people seem more concerned about the process than the result of activity. 7. Inability to complete tasks. For some people nothing ever draws to a close. Perhaps its fear of what they would do next or fear of becoming hopelessly enmeshed in detail. 8. Failure to initiate. Still others are unwilling or unable to initiate a project. It may be indecision or fear of commitment. 9. Fear of failure. People may not reach peak performance because they avoid the really important challenges in life. 10. Procrastination. Some people are unable to act without pressure. They may also look for little things to do in order to put off the big ones. 11. Misattribution of blame. Some people always blame themselves for even the slightest mishap. Some always blame others.

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12. Excessive self-pity. Some people spend more time feeling sorry for themselves than expending the effort necessary to overcome the problem. 13. Excessive dependency. Some people expect others to do for them what they ought to be doing themselves. 14. Wallowing in personal difficulties. Some people let their personal difficulties interfere grossly with their work. During the course of life, one can expect some real joys and some real sorrows. Maintaining a proper perspective is often difficult. 15. Distractibility and lack of concentration. Even some very intelligent people have very short attention spans. 16. Spreading oneself too thin or too thick. Undertaking too many activities may result in none being completed on time. Undertaking too few can also result in missed opportunities and reduced levels of accomplishment. 17. Inability to delay gratification. Some people reward themselves and are rewarded by others for finishing small tasks, while avoiding bigger tasks that would earn them larger rewards. 18. Inability to see the forest for the trees. Some people become obsessed with details and are either unwilling or unable to see or deal with the larger picture in the projects they undertake. 19. Lack of balance between critical, analytical thinking and creative, synthetic thinking. It is important for people to learn what kind of thinking is expected of them in each situation. 20. Too little or too much self-confidence. Lack of self-confidence can gnaw away at a persons ability to get things done and become a self-fulfilling prophecy. Conversely, individuals with too much self-confidence may not know when to admit they are wrong or in need of selfimprovement. JS p.s. Like this article? For more, visit our Knowledge Center! p.p.s. If you haven't already, check out the Mercenary Live Feed!

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