Many years ago, I was taught the "4 Phases of the Market" and understanding them has made a huge difference in may trading and investing over the years.    Once you understand them, you can use them to your advantage.  The 4 Phases happen on a micro-level and macro-level.  For example, you can go through all 4 phases in the span of a month on smaller chart time frames.  On a macro level, they are the phases of bull and bear markets.  They are as follows:

Disgust 

Disgust is the end of the 4 phase cycle.  It is when there is significant uncertainty and volatility with enough selling to make things painful in the markets.  This stage "feels" horrible and like it will never end.  It is most notable on big corrections such as 10% or more and bear markets.  Everything is negative and it seems there is no end in sight for the carnage.  You can also go into disgust on shorter timeframes with
3-5% moves in short periods of time such as a week or so.  The telltale sign of this phase is fear and uncertainty.  The end of Disgust is one of the best times to sell options in the markets because of the volatility and depressed levels.

Disbelief

This comes after Disgust in the form of a rally "in disbelief."  Everything has been so negative and has seemed like there is no way anything positive can happen - and then the market (stock, index, etc.) rallies and holds the rally.  Sentiment is that it cannot hold and many times it doesn't.  You can get a lot of confirmation of Disbelief during the Disgust phase as rallies are faded, but when things reach the deepest levels of Disgust is when Disbelief really happens.  Pay attention to the sentiment and prevailing narrative of "the herd", when it seems all hope is lost and the world is going to end (OK maybe a little over-exaggeration, but you know what I mean) - that is when you should be prepared and look for the Disbelief rally.

Acceptance

Once the Disbelief rally holds, it becomes somewhat of a self-fulfilling prophecy in that early adopters (the Pros) see it and start to get back in.  Still, the herd thinks it cannot hold.  They stay on the sidelines as they miss the beginning of the rally, but much to their "disbelief" it continues to hold.  Things start to "feel" better and markets get back to more normal action.  After a little while, the rally begins to reach "Acceptance" and it draws more people back in.  You can always tell acceptance when the fear begins to fade and markets revert back to normal type market action (not wild swings, etc.).  You can also tell by sentiment in that people that were scared are now dipping their toes back into the water.  This phase also lasts the longest.

Euphoria

This phase is most easily recognized when things get really hot again and it seems like everyone is making money in the markets.  "You can't lose!"  This is a great time to be in the markets and take advantage, but you must be very weary that "Disgust" is lurking and coming next.  Telltale signs of Euphoria are risk assets being piled into.  Non-traditional assets suddenly are all the rage and people who are not investors piling into the markets.  The old adage, "When you barber or dentist starts giving you stock tips, or brother in law who has never traded before, start to give advice, you are usually in Euphoria" and probably closer to the end.  Look for markets to go parabolic on the charts and further than anyone expects prior to the end of Euphoria.

Once you understand how to recognize the 4 Phases of the market, it will make a huge difference in your investing and decision making around it.  As I write this, we are in early 2022 in the Disgust phase.  I cannot say how long it will last, but I am excited about the opportunity to "be greedy when others are fearful" and take advantage of selling into the corrected levels it presents!

I came across this great article from Tradeciety.com titled "Scientist Discovered Why Most Traders Lose Money" and it grabbed my attention.  The conclusion of the article is not surprising and I've spent a lot of time over the years teaching students how to manage this one major area that drives the most loss.  

But, before I share more about, here are some eye-opening stats from the article:

1. 80% of all day traders quit within the first two years. 
2. Among all day traders, nearly 40% day trade for only one month. Within three years, only 13% continue to day trade. After five years, only 7% remain. 
3. Traders sell winners at a 50% higher rate than losers. 60% of sales are winners, while 40% of sales are losers.
4. The average individual investor underperforms a market index by 1.5% per year. Active traders underperform by 6.5% annually. 
5. Day traders with strong past performance go on to earn strong returns in the future. Though only about 1% of all day traders are able to predictably profit net of fees. 
6. Traders with up to a 10 years negative track record continue to trade. This suggests that day traders even continue to trade when they receive a negative signal regarding their ability. 
7. Profitable day traders make up a small proportion of all traders – 1.6% in the average year. However, these day traders are very active – accounting for 12% of all day trading activity. 
8. Among all traders, profitable traders increase their trading more than unprofitable day traders. 
9. Poor individuals tend to spend a greater proportion of their income on lottery purchases and their demand for lottery increases with a decline in their income. 
10. Investors with a large differential between their existing economic conditions and their aspiration levels hold riskier stocks in their portfolios. 
11. Men trade more than women. And unmarried men trade more than married men. 
12. Poor, young men, who live in urban areas and belong to specific minority groups invest more in stocks with lottery-type features. 
13. Within each income group, gamblers underperform non-gamblers. 
14. Investors tend to sell winning investments while holding on to their losing investments. 
15. Trading in Taiwan dropped by about 25% when a lottery was introduced in April 2002. 
16. During periods with unusually large lottery jackpot, individual investor trading declines. 
17. Investors are more likely to repurchase a stock that they previously sold for a profit than one previously sold for a loss. 
18. An increase in search frequency [in a specific instrument] predicts higher returns in the following two weeks. 
19. Individual investors trade more actively when their most recent trades were successful.
20. Traders don’t learn about trading. “Trading to learn” is no more rational or profitable than playing roulette to learn for the individual investor.
21. The average day trader loses money by a considerable margin after adjusting for transaction costs.
22. [In Taiwan] the losses of individual investors are about 2% of GDP.
23. Investors overweight stocks in the industry in which they are employed.
24. Traders with a high-IQ tend to hold more mutual funds and larger number of stocks. Therefore, benefit more from diversification effects.

Just understanding the pitfalls above and avoiding them can make a huge difference in your trading. 
But the biggest reason traders lose money is not any of the above.  It is because they trade on emotion and do not have a solid ruleset and trading plan to keep them grounded.  As I stated at the beginning of this article, I have spent years teaching students that the biggest obstacle to trading success lies between their ears.  You must separate emotion and logic and have a tried, tested, and solid ruleset/process for you trading - and then you must be disciplined to follow it.  That is how you keep emotions in check.  And that is how you become a profitable trader and investor.  

A lot of people ask why I don't buy stocks or options.  It's a good question and my explanation may make you question why you would as well.

For most retail traders and investors, the traditional way they try to make money from the markets or are advised to make money in the markets is by "buying low and selling high."  On its face, this makes sense and works if executed.  The problem is, as most traders find, it is not that simple.  The overwhelming majority of people who attempt to trade for a living lose money.  In fact, according to statistics, 80% of all day traders quit within 2 years.  And only 1% of all day traders are consistently profitable.  The reason being is that buying low and selling high is extremely difficult to do consistently.  

Why?  Because you have to be right.  And being right consistently in the hardest game in the world, is very hard.

I was no different than anyone else when I first stated trading.  I thought I could "time the market" and I found like most people do, that while once in a while, I would get a win - I would end up giving it back on subsequent trades and end up making no money or losing.  

But, after a couple years of trying to figure it out.  I started to ask some questions and they led me down the path to being a consistently profitable trader.  

Here are some of those questions and answers:

• How do you make money trading?  It's not a trick question.  If you buy a stock, it has to go up.  
• How many ways can stock go?  It can go up.  It can down.  It can stay the same.
• What are the base odds of making money by just buying a stock or option?  33%!  (To put that in perspective, the odds at a Blackjack table in Vegas are 46.36%)
• If buying a stock or option only gives me a 33% chance of making money, who has the 67% chance?  Whoever is on the opposite side of the trade....the seller.

Going down this path was a huge eye-opener for me.  I was stacking the odds against me by buying anything in the markets.  I was literally starting in a hole.  

And the other big "aha" was sellers get paid.  Think about it - when you buy a stock or option, you are taking on all the risk and forking over the money up front.  A seller gets paid to take on risk.  I really liked that.  

I then asked, who are the sellers?  Well, one way to be a seller is to take a company public on the exchanges and sell shares.  That wasn't happening any time soon.  Another way is to be an accredited investor and get in on an IPO.  In my early 20's, I wasn't there yet.  

So, I began to investigate how to be a seller and came across some specific types of trades that allowed me to be a seller in the markets.  Specifically, naked puts, covered calls, and credit spreads.  I started first with covered calls and naked puts and had some good success.  I then graduated to selling spreads, condors, and other types of sell trades.   And just buy choosing these types of trades, I put the odds in may favor giving me a 67% chance to win and make money from the start.

I didn't stop there because I had still had a 33% chance of losing money.  So, over the years I created advantages such as my proprietary Fractal Energy Indicator which signals when the energy in a chart is going to trend.  I came up with solid, tested rules for entry, exit, and profit taking.  And in doing so, I boosted my odds of winning trades over 90% in many cases.  But, even with that, I still had a chance of losing, so I created defensive systems and rules to protect me in case a trade goes wrong.  Because of this, I have much more control over my success as a trader than a traditional investor.  Is it perfect?   No. 
No system is, but it has served me and my students all over the world well for over 15 years.  

Will selling options pay 1000% returns?  No, selling options can pay great returns, but think of them more like consistent base hits that add up to more than the occasional home run.  That is the key to a winning strategy, consistent, compounding profits with very few and minimal losses.  

Learn to sell options, put the odds in your favor, and start compounding your profits!