SteadyOptions is an options trading forum where you can find solutions from top options traders. Join Us!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Why New Traders Struggle: 3 Key Concepts New Traders Never Grasp


Everyone knows the statistic - 95% of traders fail. Whether or not that's an accurate statistic, it's certainly true that few that attempt trading ever make life-changing money. Part of that is because most don't take it seriously. But what about those that do and fail?

 

 

In a word, trading is really hard. Markets are extremely competitive. The smartest people in the world flock to financial markets looking to get rich. There are massive hedge funds set up solely to harness the talent of said smart people. Not only are they likely smarter than you, they have access to more money, information, and technology than you. A formidable opponent.

 

But the world is littered with millionaire traders with average intelligence. So what gives?

 

Most new traders enter the stock market with preconceived notions about how it works. Good trading isn't about predicting earnings numbers, finding the perfect technical pattern, or being the best analyst. In other words, new traders think that trading is like a big game of chess with fixed rules.

 

One of the biggest differences between successful and failed traders is grasping the "metagame" of how markets trade. While strategy development, risk management, and other fundamental trading concepts are vital, mainstream trading literature tends to gloss over these three factors that we'll highlight in this article.

 

So if you've had a creeping suspicion that markets are more than just a game of predicting numbers and finding the trading pattern, you'll love these three concepts that most new traders fail to grasp.

 

The Market is a Wicked Learning Environment

Getting good at most things is simple (not not easy).

 

Learning guitar starts with plucking the strings correctly. Then understanding the fretboard. Soon you're learning chords and playing songs. After that comes soloing and lead guitar work. With each hour of practice, you can feel yourself improving and progress is relatively linear. Learning guitar, like most skills, is a kind learning environment. There are predictable patterns to follow and feedback is instant.

 

Trading is different. There are no hard rules, and even when there are, following them can still lead to negative outcomes.

 

Imagine you create a trading strategy based on selling VIX futures after a large spike in volatility. After some backtests, you conclude this is a highly profitable strategy. You're ready to go - it's time to become a trader and print money.

 

But your first trade blows up in your face. So does the second, and the third.

 

You did everything right in your strategy development, avoided all the pitfalls when backtesting, and even forward-tested your strategy. And yet, the market punished you for it. You might feel tempted to go back to the drawing board. But that might be a mistake, too.

 

The market is a wicked learning environment. There's tons of randomness and unpredictability. Experience, education, and practice doesn't directly translate into improvement.

 

The "rules" of the market are dynamic and ever-changing.

 

Markets Are Extremely Competitive

Markets are a player versus player experience.

 

You're competing against everyone else trying to make money in markets. In every trade, there is a winner and a loser. For you to win, someone else needs to lose.

 

And your competition are some of the smartest people in the world. There are massive hedge funds set up solely to harness the talent of said smart people. Not only are they likely smarter than you, they have access to more money, information, and technology than you. A formidable opponent.

 

And just when you think you've figured out the strategy of the best players, the metagame changes. Just as it does in any competitive video game like Counter-Strike or DOTA.

 

Some successful traders try to fight the big hedge funds head-to-head using the same strategies. Although many fail.

 

But many traders carve out a niche of their own by playing a different game entirely. When HFT firms started to dominate scalping, the best scalpers adapted. They prolonged their holding periods and figured out how to continue to win using similar concepts but changing a few key factors.

 

The Market is a Beauty Contest

The stock market is a beauty contest. But not in the way that you think.

 

John Maynard Keynes, the legendary economist upon whom many presidents based their fiscal policies, came up with this concept called the Keynesian Beauty Contest. And in a word, he explained that traders and investors pick stocks based on what they believe others think is valuable, rather than their own analysis of the stock's value.

 

The 1990s dotcom bubble is a perfect example. Many smart traders make a killing buying stocks like Pets.com at ridiculous valuations. But they keenly sensed that most investors were hungry for internet stocks and would buy virtually anything. For many, it wasn't about Pets.com and Webvan's great business models, it was cynically deciding that investors were acting stupid and they could profit from that stupidity.

 

You can get a sense of the Keynesian Beauty Contest by turning on CNBC. Anchors are obsessed with "market reactions" to news and events, rather than the material of the events themselves. Because that's what drives markets.

 

 

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Real-time trade sharing: entry, exit, and adjustments

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Subscribe to SteadyOptions now and experience the full power of options trading!
Subscribe

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • SteadyOptions 2023 - Year In Review

    2023 marks our 12th year as a public trading service. We closed 192 winners out of 282 trades (68.1% winning ratio). Our model portfolio produced 112.2% compounded gain on the whole account based on 10% allocation per trade. We had only one losing month and one essentially breakeven in 2023. 

    By Kim,

    • 0 comments
    • 4,398 views
  • 7 Skills You Have To Master To Play In The Asset Management Space

    Let’s start with the obvious: if you can’t predict market trends, you’re playing pin the tail on the donkey with your, or worse, someone else’s investments. Reading market trends isn’t about gazing into a crystal ball; it’s about understanding economic indicators, market sentiment, and, occasionally, why everyone suddenly loves avocados.

    By Kim,

    • 0 comments
    • 6,896 views
  • Call And Put Backspreads Options Strategies

    A backspread is very bullish or very bearish strategy used to trade direction; ie a trader is betting that a stock will move quickly in one direction. Call Backspreads are used for trading up moves; put backspreads for down moves.

    By Chris Young,

    • 0 comments
    • 8,064 views
  • Long Put Option Strategy

    A long put option strategy is the purchase of a put option in the expectation of the underlying stock falling. It is Delta negative, Vega positive and Theta negative strategy. A long put is a single-leg, risk-defined, bearish options strategy. Buying a put option is a levered alternative to selling shares of stock short.

    By Chris Young,

    • 0 comments
    • 8,076 views
  • Long Call Option Strategy

    A long call option strategy is the purchase of a call option in the expectation of the underlying stock rising. It is Delta positive, Vega positive and Theta negative strategy. A long call is a single-leg, risk-defined, bullish options strategy. Buying a call option is a levered alternative to buying shares of stock.

    By Chris Young,

    • 0 comments
    • 8,408 views
  • What Is Delta Hedging?

    Delta hedging is an investing strategy that combines the purchase or sale of an option as well as an offsetting transaction in the underlying asset to reduce the risk of a directional move in the price of the option. When a position is delta-neutral, it will not rise or fall in value when the value of the underlying asset stays within certain bounds. 

    By Kim,

    • 0 comments
    • 8,230 views
  • Diagonal Spread Options Strategy: The Ultimate Guide

    A diagonal spread is a modified calendar spread involving different strike prices. It is an options strategy established by simultaneously entering into a long and short position in two options of the same type—two call options or two put options—but with different strike prices and different expiration dates.

    By Kim,

    • 0 comments
    • 10,104 views
  • Gamma Scalping Options Trading Strategy

    Gamma scalping is a sophisticated options trading strategy primarily employed by institutions and hedge funds for managing portfolio risk and large positions in equities and futures. As a complex technique, it is particularly suitable for experienced traders seeking to capitalize on market movements, whether up or down, as they occur in real-time.

    By Chris Young,

    • 0 comments
    • 13,392 views
  • Why New Traders Struggle: 3 Key Concepts New Traders Never Grasp

    Everyone knows the statistic - 95% of traders fail. Whether or not that's an accurate statistic, it's certainly true that few that attempt trading ever make life-changing money. Part of that is because most don't take it seriously. But what about those that do and fail?

     

    By Pat Crawley,

    • 0 comments
    • 10,500 views
  • Long Call Vs. Short Put - Options Trading Strategies

    In options trading, a long call and short put both represent a bullish market outlook. But the way these positions express that view manifests very differently, both in terms of where you want the market to go and how your P&L changes over the life of the trade.

    By Pat Crawley,

    • 2 comments
    • 10,423 views

  Report Article

We want to hear from you!


There are no comments to display.



Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs