Why do some retail investors always lose money after struggling in the market for several years?

There must be many reasons. It may be that the technical level is not enough, or that the trading system is not yet perfect, or even that the mentality is not done well. However, these are not the main reasons. The most critical factor that determines a trader's ability to make money in the market is: cognition.

In trading, only when you have a clear understanding of the market, the future, and yourself, can you continuously overcome the weakness of human nature, and finally achieve stable profitability.

A large number of people can only make a small amount of money in trading or sink deeper and deeper on the road of losing money, which is to step on the pit of cognitive bias. Cognitive bias is just one of the more common prejudices. If you want to avoid falling into these pits, you must first know where there are pits.

Traders will use some historical experience to help themselves understand and predict trading events, and rely too much on these imperfect prior conclusions. But, unfortunately, these a priori do not stand the test of the market. When the market is full of uncertainty, traders often choose to stick to these a prioriism. Once or twice may be lucky to make a profit, but in the end it is inevitable to lose money.

That is to say, if you succeed in doing something, you will think that you have strong ability, but if you fail, you will blame external factors or bad luck. The biggest characteristic of leeks is that when they make money in the bull market, they think they are very good, but when they suffer big losses in the bear market, they start to scold the institutions and the economic situation, but they don't blame themselves.

In fact, investment decisions are made by each trader himself. The biggest responsibility for losses lies with himself. It may be that you have biased information collection, or that you do not understand the information in place, or even irrational investment operations and so on. Real masters are constantly improving themselves without wasting time complaining about others.

There are many uncertainties in the market every day. Because of information asymmetry, traders often speculate on information they do not know through the behavior of other people in the market, and even simply follow the decisions of others to place orders. The most frightening thing is that the most important factor is not whether the opinion itself is correct or not, but how many people agree with it. Individual irrational behavior leads to collective irrational performance. This is what we often call the herd effect. Individuals choose to take the same actions as others regardless of the information they have.

In the transaction, when closing positions early can bring certain profits to traders, traders often fail to insist on holding positions, and choose to close positions early. When losing money, traders always expect the market to reverse and fail to stop the loss as planned, because the deterministic loss caused by the stop loss will make it more difficult for traders to accept.

For most traders, this is a big hurdle that prevents them from letting their profits run. Because for medium and low frequency trading strategies, the necessary condition for profit is to be able to hold profitable orders and let profits run when doing the right direction.

After a trader has experienced a losing streak, he will mistakenly believe that the probability of making money in his next transaction will be higher. However, each transaction of a trader is independent, and your next transaction has nothing to do with the previous consecutive losses or profits. At this time, the most correct way is to stick to your trading strategy and not change your strategy because of your miscalculation.

The overconfident market has been down for so long, it's time to go up! For many traders, overconfidence is a deep-seated bias. People with this bias always have a higher than objective level of confidence in their abilities.

Overconfidence of a trader may lead to two results: one is to operate too large funds and take risks that he can't afford to trade; the other is to believe too much in himself, and as a result, he is stuck with a loss order, and may even eventually lose his position. Especially for novices, the result of overconfidence is often to increase the leverage to fill the position, and not stop the loss if it makes a mistake. We need to be confident, but remember not to overdo it, but also to be objective. This requires always thinking about the problem based on the risk side, and thinking about the cost of failure before placing an order, instead of thinking about how much money you can make.

Trading is anti-human, and these just reflect the weakness of human nature, which is an unavoidable problem for every trader. Those successful traders only gradually recognize and jump out of these pits after experiencing actual battles again and again. Therefore, in order to avoid the cognitive bias mentioned above, we can only rely on each trader to experience and summarize from actual trading. However, we can start with the following:

① Be fully aware of your own limitations. Everyone's living environment and contact circle are affected by family, education and work. No one can cover everything. Therefore, every trader should always remind himself not to be overly influenced by the environment he is familiar with.

② Master traders are hard-working learners who need to constantly improve themselves through reading. Only by continuous learning can we have a more comprehensive understanding of the market and even the world.

③ Always remember that the market is unpredictable. You must know that the laws summed up by the predecessors are the product of a certain period of time and cannot represent the present, let alone predict the future.

④Continuously temper one's character through real offer transactions, and pursue the consistency of transactions.

⑤ Split the entire transaction process. The steps in the entire transaction process can be effectively disassembled, such as strategy research, transaction execution, review, etc., so as to prevent cognitive bias from spreading throughout the transaction process, and to know afterwards that you have made a mistake in that link. question.

In short, overcoming and avoiding cognitive bias in trading is a process of continuous exploration by oneself, and for 99.99% of traders, there is still a long way to go.