Why Most Traders Quit– Not Fail & A Solution To That Too

Trader's Mindset

Nov 19

We always hear how most traders fail. However, the truth is that most traders quit: they do not actually fail. Read on to learn the difference.

You see to fail at something then you must pursue something in such a way that it tells you that it is a failure– that it cannot work.

Sure, many traders have blown out accounts. But, to fail at something, you must pursue it in such a way that it tells you if you did everything right that it cannot work. If you break your rules, do not trade your method, over-leverage trades, do not take trades, and made other poor decisions then a blown out account does not tell you much.

Momentary detour, this is another reason to stop paying for futures tryouts. They are most definitely a scheme and, based on my experience, they do not care about traders.

And, I know what some of you are thinking, “Yeah I know I don’t have the edge to pass but if I could hit a good run then I can pass maybe 45% of the time”. The problem is that it puts you in a “likely to lose situation” which is not conducive to development. If you can develop the kind of ability required to pass then certainly you do not need their capital, you either can or cannot.

Now, in order, to fail you need to pursue something with a certain seriousness. So, if a trader blows out a tiny account then that’s expected: it doesn’t tell us very much, actually. Even traders who lose a ton of money but never traded their plan– again they haven’t failed. They blown their money and quit. You can blow your money on a lot of things.

So, yes very few traders have actually failed.

However, there are a few common themes as to what causes traders to quit:

  1. A trader might be successful in many ways but not have the proper business or trading plan that will allow them to scale up to 165k per year. If a trader cannot make more trading then doing anything else then there is always a conflict– between pursuing something else and trading.
  2. Taking tiny profits or giving back large wins.
  3. Short-term and optimistic thinking. A trader sees something– doesn’t know if it is an edge and implements it right off the bat.
  4. Lapse in discipline, technical errors or mistakes, or other mistakes that cause large losses. While there are myriad of causes here, the root cause is a combination of too much leverage, not being adequately prepared, and not having enough external risk controls.
  5. Inability to adapt to new market conditions. Over specialization and not enough setups or systems, diversification, market cognition, staying power– whatever you want to call it. For single market traders, there are typically few months where day trading is really profitable out of the whole year. Of course, those periods tend to be very risky and volatile periods where it is easy to lose a lot too. It can also happen when a trader learns something that works and then it quits working.
  6. This goes back to something else too– too much focus on performance of the trading aspect. Being great at the trading aspect can be important but is over emphasized. Why? Because you have to make the math work. See my recent posts on making the math work. Performance is also short-term in nature. If you are great at trading the current conditions, chances are you will be poor when conditions change. Performance is by nature the non-quantitative aspects of trading and often reactionary. This is not to say that there are a few “performance focused” traders who can make it work.

    It also misses the mark: most traders want to survive. How many traders would be more happy just not blowing out their accounts? The drive to constantly push performance makes one more likely to fail. A balanced focus is more likely to be sustainable.

It boils down to this really:

Trading success requires maintaining a long term focus. Most traders are short-term focused. Without a strong environment, like my Quantitative Collaborative or doing it at a professional level then most decide it is not worth it.

Notice, I am not saying the solution has to be my program. If you can find a better program, most certainly take it.

The two goals you must have are:

  1. Create or join an environment to sustain success.
  2. Make sure you can get the math to work to eventually get you to the 165k / annual level. Again, this doesn’t have to happen the first years and maybe your goal will be different but you need that clear goal in mind.

At least, these are my thoughts and my plan.

Have better insight to share? Let me know.

About the Author

The author is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact the author at curtis@beyondbacktesting.com.