Leading financial information website Safe Trade Binary Options has carried out new research to understand why many traders fail to maintain a positive performance over the longer term.
Analysts from the outlet studied a raft of academic research and were able to conclude that there are two principal drivers behind a lack of success.
Study lead Saqib Iqbal, from Safe Trade Binary Options said, “90% of traders fail because of random reinforcement and lack of discipline. Academics who study financial markets have long recognized that the great majority of traders – over 90% – underperform over a multiyear period.
“Most failed trading decisions are based on emotions, the need for adventure, and the desire to make a million dollars in your pajamas rather than on good research or established trading strategies. Traders sometimes overlook that trading is a career that requires dedication and commitment to building skills up over time.”
Research shows that active traders tend to enjoy less success with a much lower annual return.
“No trading strategy, no matter how good, will succeed if the trader does not follow it with discipline and attention over a long period,” author Saqib Iqbal adds.
“In trading, there is a concept called “random reinforcement.” These traders purely act on intuition and not on their trading plan. They’ll have a few winning streaks, and then they’ll randomly reinforce the whole thing. So, many will begin to risk more money on each trade in order to gain more money. This leads to further losses as their random winning streak ends.
“Trading is a long-term effort that needs a clear plan of action. You must plan ahead of time precisely what and how you will trade.”
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