You suck at day trading.

You're not the only one. In fact, most people who try day trading fail miserably.

Why?

There are a number of reasons, but the biggest one is that they make a lot of logical errors 🎡 #

Everyone knows about our tendency to follow on an investment if we have sunk time—or money—into it, even while knowing the current costs outweigh the benefits. It's how we all get hooked. But there are many other unconscious biases that are stopping traders from achieving their goals.

For example, they often mistakenly believe that they can predict the future movements of the markets. This leads them to make all sorts of bad decisions.

Another common error is when people only remember their successful trades and forget about their losing ones. This leads them to believe that they're better at trading than they actually are.

And finally, many people who day trade are addicted to it. They become gambling addicts and can't stop even when they're losing money.

If you care to fix these problems, you can address the unconscious biases 🎠 #

Our brains are wired to make quick judgments and assumptions about people and things in our environment in order to help us navigate the world. These judgments and assumptions are based on our past experiences, beliefs, and values. While we may not be aware of it, everyone has unconscious biases, which are learned stereotypes that are automatically activated in our brain when we encounter certain people or situations. Unconscious biases can lead to discriminatory behaviors and attitudes towards others, but also limit how we view the markets.

Logical errors

• Sunk cost bias - the tendency for people to continue investing in something as long as they have already invested a lot of time or money, even if it is not rational to do so.
• Survivorship bias - people only remember the times when they were successful in trading, and they forget the times when they lost money. This creates an illusion that day trading is easy and that anyone can make money from it.
• Selection bias- people only focus on the successful traders and ignore the fact that most people lose money in day trading. This creates an unrealistic expectation of what day trading is like and how easy it is to make money from it.
• Trading addiction - people become addicted to the thrill of making money from day trading, and they ignore the fact that they are more likely to lose money than to make money. This can lead to financial ruin.

Modern portfolio theory (MPT) ⚖️ #

Modern portfolio theory is built on the premise that investors are risk averse, meaning that they prefer lower levels of risk when given the choice. This theory helps investors to identify and assess their own risk tolerance in order to make investment choices that are aligned with their goals and objectives. Additionally, modern portfolio theory can help investors to confront their own biases and make more informed investment decisions. By understanding the risk and reward trade-off, investors can make choices that balance their need for return with their aversion to risk.

Many people know the benefits of diversification, but few take the time to really understand the metrics that are used to help establish that reality. Modern portfolio is a theory that suggests that asset allocation is the most important determinant of investment returns.

There are a number of benefits of modern portfolio theory, including:

1. It provides a framework for thinking about how to construct portfolios that are efficient in terms of risk and return.
2. It helps investors understand the trade-off between risk and return, and how to optimize their portfolios to achieve their desired level of risk and return.
3. It can help investors diversify their portfolios across a range of assets to reduce overall risk.
4. It can help investors identify and avoid potential pitfalls in portfolio construction, such as over-concentration in a single asset class.

Key Indicators of MPT #

1. The efficient frontier is the line that represents the optimal portfolios that offer the highest expected return for a given level of risk.
2. The capital asset pricing model (CAPM) is a model that describes the relationship between expected return and risk for a security or portfolio.
3. The Sharpe ratio is a measure of risk-adjusted return, which compares the return of an investment to its volatility.

The world is full of opportunities. Sometimes we have to seize them, and sometimes they come to us. But either way, we have to be open to them. We have to be willing to take risks, and we have to be willing to fail. Because it's only through taking risks and failing that we can really learn and grow. And it's only through learning and growing that we can make the world a better place.