According to legendary trader WD Gann, there are three main reasons why people fail in the stock market. The first is that a poor trading strategy leads to prior failure. He may have heard the saying “To fail to plan is to plan to fail”, this is the same as nothing. Without proper trading strategies and rules, most people fail early on, losing money on their first few trades. They never bother to learn the correct strategies early on and have already set themselves up for failure.
The second reason for failure is trading with a lack of proper knowledge and materials. Most of the materials sold to investors is junk. He said this is he read over 200 books on stock trading (over 50 years ago). That being said, only about a dozen books contained quality material, WD being one of the few. It’s the truth! WD’s material has provided traders and investors with successful methods and techniques for almost 100 years to date. It has provided the most complete teachings in the science of the market.
Trading without proper knowledge is like a young man trying to become a doctor because he goes to medical school etc. Although required by law here, look at the amount of time many spend getting a four-year education and perhaps doing graduate work. The amount of time spent here preparing to earn income is very high. Applying a similar study time to investing is one way one can become familiar with time-tested trading methods that ensure highly probable success.
Lastly, failed trading rules and methods lead to the demise of markets. Simply put; Even with the right strategies and methods, your portfolio will never be profitable without successful trading rules. 85% of traders admit to not using stop loss orders, and many don’t even have rules for when and where to buy and sell. By developing a rules-based trading method with capital protection (stop-loss orders), one can give themselves the best chance of taking the excitement out of the trading game by entering the market with a pre-set path to follow.
Emotions certainly run high with money at stake and he teaches us to set rules first that allow us to make non-emotional decisions in the market based on probabilities, while keeping exposure to a minimum through the use of monetary protection methods. By eliminating the number one weakness, the human factor, traders have the best chance of making unemotional decisions and excelling in their trading according to a pre-determined rule plan.
Gann teaches traders how to spot trends in fast-moving markets and how to trade them while protecting 90% of all capital in an open trade. With this, traders can make up to 10 trades before going bust with their money. He paints a series of volume, price and time based rules that reveal to traders when to be in the market and when to get out.
In conclusion, the human factor is the weakness that breaks most of the traders because they trade on emotion and the game becomes a bet on fire. By removing emotion through stop-loss rules and orders, traders offer themselves the best chance to excel in their trading, this is all the same. Without proper trading strategies and rules, most people fail early on, losing money on their first few trades. They never bother to learn the correct strategies early on and have already set themselves up for failure.
