Not Wired For Trading

I’ve had the opportunity to meet many people throughout my life. Dealing with the ups and downs of trading, managing risk, and learning to accept it has led me to a simple realization: most of us-almost by design-were not meant to trade.

Human nature and trading often form a strange (and usually costly) combination. Below are a few observations about why this happens, and why roughly 95% of market participants consistently lose money.

Survival Instincts

In the wild, an animal that senses a predator nearby knows it must run-or die. That same survival instinct exists in us. When we lose money, our brain interprets it as a threat to survival: less money means less security, less ability to pay rent, less control.

As a result, we feel an overwhelming urge to retreat-close positions, abandon trading altogether, and “make the pain stop.” This response is existential and uncontrollable. We all feel it.

The real question is not whether we feel it, but how we manage it. One effective mental shift is to treat losses as business expenses-the cost of operating in an environment that offers opportunity but demands payment along the way.

Understanding (and Feeling) Risk

As traders, we focus heavily on returns-often overlooking the risk required to achieve them. This makes losses harder to tolerate when they inevitably arrive.

Risk is not a flaw in trading; it is the price of admission.

To manage it, we must understand what we are signing up for:

• How volatile is this trade or strategy?
• What mechanisms drive its pricing (especially critical in options)?
• What does a typical drawdown look like?
• How deep are the worst drawdowns, and how long do they last?

Feeling risk is essential to understanding it-but preparation is what allows us to survive it. When risk is understood and controlled, emotions become manageable, and we stay in the game long enough for an edge to matter.

A Bad Plan Is Better Than No Plan

Scrolling through WallStreetBets can be sad, amusing, or both. It’s also a live demonstration of what happens when people confuse hopes with plans.

Wanting to get rich overnight is not a strategy. It’s a desired outcome-without steps, rules, or constraints.

If you want to reach a destination, you need a map. Your plan doesn’t have to be perfect, and it will evolve over time-but without one, you’re gambling. And gambling has a negative expected value for the player.

“Switching Costs”

Consistency and persistence matter.

Even a reasonable strategy needs a large enough sample size to reveal its edge. Constantly switching systems because something else “looks better” often leads to the worst possible outcome: rotating into drawdowns and out of recoveries.

You end up suffering losses from multiple systems without capturing the benefits of any. Poor execution destroys long-term results-and makes your trade history meaningless, because it no longer belongs to a single coherent system.

Make It Count

I once spoke with a trader who proudly showed me his strategy. I couldn’t evaluate its edge-but that wasn’t the main issue.

Despite believing in the system, he sized his trades so small that even perfect execution wouldn’t materially affect his portfolio. When asked why, he said he was afraid to lose.

Sizing down is fine-especially at the beginning. But meaningful progress requires meaningful exposure. To grow, you must accept reasonable size and inevitable drawdowns.

In The Dhandho Investor, Mohnish Pabrai famously emphasizes the idea of “few bets, big bets, infrequent bets.” While my own trading style involves frequent activity, this principle has stayed with me over the years. At its core, it highlights a simple but powerful truth: meaningful progress rarely comes from spreading ourselves too thin. It comes from concentrating risk thoughtfully when the odds are truly in our favor-and it is this mindset that ultimately enables the big leaps forward.

Save enough. Size responsibly but make it worth the effort.

The Disposition Effect

The urge to take profits quickly and let losers run is deeply human-and deeply destructive.

A single trade means nothing in isolation. What matters is how trades behave over the next 1,000 executions.

If a system wins 60% of the time with an average $100 gain but loses $250 when wrong, its expected value is negative-even though “most trades win.”

Design systems that make sense in aggregate, not emotionally in the moment. Immediate comfort is often the enemy of long-term profitability.

High Win Rate Obsession

Win rate is only one component of expectancy.

A 95% win-rate strategy can be terrible if the remaining 5% wipes out months of gains. Conversely, a 40% win-rate strategy can thrive if winners are large enough to cover multiple losses.

In Antifragile, Nassim Taleb explains how humans try to suppress volatility-making losses rarer but far more catastrophic. Hidden risk is far more dangerous than visible risk.

As Tom Hougaard put it: “The best loser wins.”

I prefer my risk visible and manageable-not rare and fatal.

Money from Another Dimension

Handling swings equivalent to a monthly salary in a few days is not natural. It can feel surreal-or terrifying.

This is why we must think in percentages, not absolute numbers. If you’ve accumulated or inherited meaningful capital, take the time to understand what a 10% drawdown actually looks and feels like.

You will experience it eventually. The goal is to ensure it doesn’t interfere with your judgment, execution, or sleep.

Final Thoughts

Trading is not just a technical challenge-it is a deeply human one. Our instincts, emotions, and cognitive shortcuts were shaped for survival, not for operating in probabilistic, noisy, and unforgiving markets. Ignoring that reality is one of the fastest paths to failure.

Edges in trading are often small, fragile, and slow to reveal themselves. Surviving long enough to benefit from them requires structure, discipline, and a clear understanding of risk-not just optimism or intelligence. A solid plan, consistent execution, appropriate sizing, and respect for drawdowns are not optional; they are the foundation.

Whether you trade frequently or infrequently, the goal is the same: stay solvent, stay rational, and stay in the game. Progress comes not from chasing perfection, but from accepting uncertainty, managing it well, and allowing compounding-both financial and psychological-to do its work over time.

In the end, trading rewards those who can think long term, lose well, and act consistently when it matters most.