BackgroundModule-Futures.jpg

Why Futures traders fail?

Random Reinforcement: Using arbitrary events to qualify (or disqualify) a hypothesis or idea; attributing skill or lack of skill to an outcome which is unsystematic in nature; finding support for positive or negative behaviors from outcomes which are inconsistent in nature - like the financial markets.
One of the most interesting topics in trading, and really throughout many areas of life, is what could be called random reinforcement. Random reinforcement, as it relates to harmful trading practices, occurs when a trader attributes a random outcome to skill or lack of skill. The market occasionally rewards bad habits and punishes good habits because the market is so dynamic. It is especially negative if a new trader who wins a few trades, with absolutely no plan whatsoever, attributes this success to "intuition". Random reinforcement can also hurt experienced traders who experience a string of losses and believe they no longer possess skill. (Find out how your mindset can play a larger role in your success than market influences, see .)

Random reinforcement can create long-term bad habits which are extremely hard to break. It is equivalent to a gambling addict as they keep playing because they win just enough to keep them there, but of course they are losing their money over the long run. A successful card player may also experience a significant draw down, abandon his proven strategy and in doing so gives his edge back to the house. (Learn more in .)

How Random Reinforcement Affects Us in the Markets

Example #1: Relying on Random
John is a new trader. He has a business background, watches the news and follows the stock market, but has not traded personally. He feels he has a good handle on what it takes to be a good trader, but so far he has not written any of these methods down. John has opened a trading account and believes his background knowledge will make him a profitable trader. Opening his charts for the first time John see a default stock in the trading platform and it is rising quickly. He quickly buys 200 shares without even thinking. The stock continues to rise while he makes lunch. After lunch he comes back and sells his shares, making himself a $100 profit after fees. John makes another trade and ends up with the same result. He is starting to feel that he is very good at this, and that he must have a "knack" for trading.

Futures Trading Strategy  — Inside Futures
Overpriced and over-complex futures contract trading strategies that include complex formulas and multiple lagging indexes are generally not conducive to successful futures trading.

Popular Q&A

avatar
Why does a trader fail to display the price tag on the product?

It depends what country you're in. In the UK - it's not a legal requirement to price items individually - so long as there is a clearly marked localised sign to indicate a products price.

Related Posts