Many people face the same problem when trading:

Looking at past market trends on the chart, one can clearly and distinctly identify patterns, feeling that their judgment is accurate and that making profits is very simple.

However, once they enter the actual trading battlefield, it seems as if the world has turned upside down. Their trading strategies become ineffective, they don't know what to do, and can only follow the market blindly, chasing gains and cutting losses, which leads to a collapse in mentality and increasing losses.

In the early days of my trading, I was also in this state, and for a long time, I couldn't find the reason.

Later, I tried to detach myself from trading and the market, which allowed me to gain the ability to think independently and to view trading from an outsider's perspective.

Many times, it's not that you lack the ability to see the situation and summarize patterns, but because you are always in the midst of the situation, you can't see the true face of the mountain.

Today, in this article, I combine my past trading experience to summarize the reasons why everyone can judge the market but keeps losing, hoping to help you out of the predicament.

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1. The trading strategy is too complex or not in sync with oneself

Many people, when formulating a trading strategy, want to earn more and faster, so they keep adjusting the system parameters to the extreme, but they neglect the execution aspect, which is also one of the most serious mistakes I made early on.

For example, some people, in order to have a high success rate, set up a very complex trading system.Resonance of different cycles + resonance of different indicators, an order entry requires filtering through more than a dozen conditions. Once such a situation is encountered in real combat, too many conditions are prone to errors, and opportunities are too few. When you don't have a trading opportunity for ten days and half a month, it's impossible not to itch for action, and this is when the problem becomes significant.

For instance, some people are fond of making big money, so they set their profit-to-loss ratio to be very high. The desire to let profits run is something everyone has, but doing so only leads to holding positions for too long, making it difficult to hold onto trades. When you backtest your trading strategy, it feels like you've made thousands of points in profit, which is exhilarating, but as soon as you enter the real battlefield, you become restless as soon as the market starts to move, and you can't help but close your position, only making a few dozen points. Most people are like this.

There are also those who prefer trading on very large time frames. They often focus on key levels of daily or weekly charts, but the frequency of trading signals is too low. You wait and wait until the flowers have wilted, and still, no signal comes. In their impatience, they can't help but make a few trades, and then it's all over.

Many people have not reflected on their temperament to determine what kind of trading strategy suits them. Some people with a quick temper end up with a long-term trading strategy on a large cycle, and when it comes to execution, they are anxious and unable to follow through. Others, who are naturally slow, adopt an intraday short-term strategy, but their slow reaction leads to chaos, resulting in mistakes or missed opportunities.

Therefore, the first thing to do in trading is to learn to understand oneself. Many people are unwilling to analyze themselves or admit their character weaknesses. I believe that most of my followers are adult men, and as men, we should not have too much pride. It is essential to learn to understand ourselves.Understanding one's own personality and being aware of one's temperament are crucial for avoiding our weaknesses and leveraging our strengths. Only by doing so can we potentially achieve success in certain industries, and this is especially true in trading.

Therefore, when devising a trading strategy, it is essential to consider one's personality traits and the ability to execute the strategy with 100% commitment.

Always remember this saying: there is indeed a lot of money in the financial markets, and there are many wealth myths, but none of these belong to you. Only the profits that you can grasp are truly yours. By staying humble, patient, and not greedy, we can secure a share of the market's rewards.

I have previously written an article titled "How to Create a Trading System That Makes You Comfortable," which discusses how to adjust trading system parameters according to one's personality. Interested friends can check it out on my public account (Eight-Digit Garden).

2. Lack of probabilistic thinking in trading

Many people have a strong recency bias when it comes to trading.

When a trading strategy starts and suffers a few losses, they begin to worry. They wonder if there is an issue with the strategy, whether it's a problem with the market or themselves. Should they modify the strategy? Should they stop trading?

When you focus too much on the gains and losses of each individual trade, your emotions are already being manipulated by the market.

That's why I always emphasize the importance of becoming a "heartless" trader. What the market does to you is not important; as long as you remain unmoved, you won't be hurt.

This is because many people, after being hurt in the short term, start to doubt themselves, change their strategies, or even give up and exit, missing out on wave after wave of significant profits, and ultimately attributing the failure to the market conditions.In fact, trading is a game of probability, much like playing chess. If you lose a piece or a few pieces, you start to suffer and begin to concede defeat. How can the game continue then?

We must not be a mere piece in the chess game, but rather the player making the moves. It's not important to have one less or one more piece in the short term; what matters is the ultimate victory.

Trading always involves losses and gains. As long as we focus on increasing the probability of overall profitability, pay more attention to the win-loss ratio, and position management, we won't be overly concerned with the outcome of each trade, nor will we miss out on the profits we deserve.

3. In the face of risk and profit, people instinctively choose profit.

Everyone likes to learn from history. When looking at historical market trends as an outsider, through the rearview mirror, one can be very objective and rational. However, we often overlook a characteristic of human nature, which is the tendency to seek benefits.

Under the temptation of profit, people often lose their rationality and ignore risks.

Let me give an example. If a classmate suddenly asks to borrow 100,000 yuan from you for investment, you might curse them in your heart, then casually refuse on the surface.

But when two months later, you hear from another classmate that he borrowed 100,000 yuan from this classmate and made a profit of 50,000 yuan in two months, you start to itch with regret, wishing you had lent the money at that time.

As a result, when this classmate comes to you again asking to borrow money for investment, you will lend it without hesitation, and even more.

In the end, your classmate runs away with all the borrowed money, and you lose everything.In trading, the same principle applies. When you are skeptical about the unknown profits, you will always be cautious; but when you are in the midst of it and actually feel the temptation of such profits, you will instinctively ignore the risks, ultimately leading to losses.

This is also why many people can analyze the market rationally and objectively after the fact, but cannot restrain themselves during the actual trading.

There is a solution to this situation.

It is because you do not understand something thoroughly enough that you are tempted. When you realize that trading is just a matter of ups and downs, having experienced making money, losing money, periods of profit, periods of decline, and all the torments of the market, you will not be easily tempted by the benefits that the market presents before your eyes.

Therefore, this requires you to "personally experience" the changes in the overall market, such as doing post-mortem analysis, such as doing simulated trading, and using the most realistic amounts, taking each trade seriously as if it were real. In this way, over time, you can experience the difference between seriously executing trading strategies and not executing them, chasing rises and selling falls.

Moreover, many people chase rises and sell falls in the market because many situations are "unseen". This indicates that they have not experienced enough, their strategies are not comprehensive enough, and they have not anticipated all possible situations. The absolute classification I mentioned earlier is also to solve all possible problems in trading, ensuring absolute execution in any market situation.

4. Observational bias in trading

K-line charts actually have visual biases. Some patterns seen on k-line charts are very different from those seen in the real market on replay software, which may affect our judgment and lead to technical failures.

For example, the k-line pattern on the chart, before the break, and after the break, there is a significant difference in observation.

Looking at the right side of the market after it has unfolded, the entire consolidation pattern is a top head and shoulders with a clear upward sloping neckline, and after the break, the market has also made a significant move.With the trend following a break on the right side, looking back at the left side is very simple. However, looking only at the left side is a mess, which is a bias in observation.

Many people are accustomed to dragging past candlestick charts on software to observe patterns, which can lead to this kind of observational bias. It seems very clear when looking, but losses are always incurred when putting it into practice.

This is also why I repeatedly emphasize the importance of using backtesting software to verify trading systems. On backtesting software, we return to a certain day in history, and we cannot see the subsequent changes in the trend during backtesting. As the backtesting software advances, the trend unfolds slowly, one candlestick at a time. A trading system observed, tested, and summarized in this manner will be more objective and valuable.

I would also like to remind everyone of another situation: when formulating trading rules by looking back at historical trends, it is crucial to be clear and explicit, avoiding subjective judgments.

Moreover, trading will inevitably generate psychological pressure, especially when there are changes in profits and losses, or when trading with a heavy position. The psychological pressure increases, and it becomes easier to have biased observations, leading to a higher probability of making mistakes.

Therefore, maintaining objectivity and rationality, along with controlling psychological pressure, is a necessary secret to profitable trading.

5. Bias in trading statistics

Often, friends will tell me that they have formulated a certain strategy or have statistically analyzed a certain pattern and feel that the success rate is very high, asking me if it's viable.

In reality, many people's situations are as follows:

After statistically analyzing a certain strategy or pattern, they will initially test it in the market. Once they find that the market conforms to this pattern, they will exclaim: "Just as I thought!"However, if it does not conform to the patterns you have summarized, it will be automatically ignored subconsciously. All that remains in the mind is that the trading strategy I have summarized is really awesome, and I am really awesome!

In fact, in statistics, data sets that are too small and data over too short a period do not have statistical significance, and the conclusions drawn are not objective, which is why it leads to your cognitive bias, making you think that this is correct. But when you apply it to real market conditions, you end up losing a lot.

People all have subconscious minds, and the subconscious mind tends to seek benefits and avoid harm. The data you have statistically analyzed may only be the tip of the iceberg. A strategy may perform well over a few months or half a year, but when you extend the timeline, you will find that the profit rate is not high, or even at a loss.

Therefore, I suggest to all friends who are reading my article, no matter what kind of trading strategy you have and how awesome you think you are, I suggest that you either use backtesting software or simulated trading to organize a large number of market conditions, or you can try and make mistakes with a small amount of capital in the market.

Then you can create a statistical table and record all trading behaviors and results, and then we can analyze our strategy based on the data, which is considered objective. Instead of using "intuition" or "results from memory" to determine your trading behavior.

6. 99% of trading losses are due to position sizing issues.

Many people have great trading strategies in mind, are very proficient in trading techniques, and have a good grasp of market conditions, but they can't make a profit no matter what they do, and 99% of it is the issue of your position sizing.

Over a period of 4 months, the Dow Jones Industrial Average has been in a structure of MACD top divergence on the daily line.

In this structure, there is an expectation of a reversal and downward trend in the market. It is reasonable to use the hourly chart as an entry signal for the daily level expectation, but when entering on the hourly chart, at least more than 8 short positions will be stopped out.

An account of $10,000, if each position is opened with 1 contract, will lose at least $6,000, which is a 60% drawdown of the account. Subsequently, under the influence of the pandemic, the Dow Jones Industrial Average fell sharply by 10,000 points, and the last short position could make up for the previous 8 stop losses, turning losses into profits.But don't even talk about a 60% loss; even a 40% or 50% loss can shatter one's mentality, making it impossible to wait for future profits. At this point, even if you are very accurate in your market predictions, it is extremely difficult to persist.

However, what if you adjust your position to 0.5 lots? With a maximum drawdown of 30%, you still have a principal of 7,000 in your account, and the likelihood of gritting your teeth and persevering is significantly higher.

So, it's not that your market predictions are inaccurate, nor is there a problem with your trading strategy. In most cases, it's that your position is too heavy, exceeding your tolerance.

Don't disdain the small earnings from a light position; it's better than a loss.

What you hold in your hands is yours; any other money, no matter how much, belongs to the market. In trading, or in doing anything, always prioritize risk.

Let me give you some advice on position sizing:

If your position is 1 lot and you feel a bit anxious, under pressure, and teetering on the edge of collapse during a series of stop losses, then you should take a step back.

Continue to do so until you find a position where you feel very comfortable, even if you experience 10 consecutive stop losses, and you can still bear it. That is the suitable position for you.

Based on my years of experience, most people tend to overestimate their tolerance, so taking a step back can lead to unexpected execution.

Alright, that's all for this topic today. Being right about the market is not such an extraordinary thing. Truly sticking to your trading strategy and steadfastly moving towards profitability is the most challenging aspect of trading.