Trading & investing is not easy. If it were, everyone would be rich.
Here’s a couple time-honored reasons that traders lose money, and some tips to help you get back to basics.
Lack of knowledge 📘 Many traders jump into the market without a thorough understanding of how it works and what it takes to be successful. As a result, they make costly mistakes and quickly lose money.
Poor risk management 🚨 Risk is an inherent part of trading, and it's important to manage it effectively in order to protect your capital and maximize your chances of success. However, many traders don't have a clear risk management strategy in place, and as a result, they are more vulnerable to outsized losses.
Emotional decision-making 😞 It's easy to feel strong emotions while trading. However, making decisions based on emotions rather than rational analysis can be a recipe for disaster. Many traders make poor decisions when they are feeling overwhelmed, greedy, or fearful and this can lead to significant losses.
Lack of discipline 🧘♂️ Successful trading requires discipline, but many traders struggle to stick to their plan. This can be especially challenging when the market is volatile or when a trader is going through a drawdown. Create a system for yourself that's easy to stay compliant with!
Over-trading 📊 Many traders make the mistake of over-trading, which means they take on too many trades and don't allow their trades to play out properly. This leads to increased risk, higher brokerage costs, and a greater likelihood of making losses. Clearly articulating setups you like can help separate good opportunities from the chaff.
Lack of a trading plan 📝 A trading plan provides a clear set of rules and guidelines to follow when taking trades. Without a plan, traders may make impulsive decisions, which can be dangerous and often lead to losses.
Not keeping up with important data and information ⏰ The market and its common narratives are constantly evolving, and it's important for traders to stay up-to-date with the latest developments in order to make informed decisions.
Not cutting losses quickly ✂️ No trader can avoid making losses completely, but the key is to minimize their impact on your account. One of the best ways to do this is to cut your losses quickly when a trade goes against you. However, many traders hold onto losing trades for too long, hoping that they will recover, and this can lead to larger than expected losses.
Not maximizing winners💸 Just as it's important to cut your losses quickly, it's also important to maximize your winners. Many traders fail to do this, either because they don’t have a plan in place, telling them when and how to exit a trade. As a result, they may leave money on the table and miss out on potential profits.
Not Adapting 📚 Adapting to changing market conditions is paramount to success in the financial markets. Regimes change, trading edge disappears and reappears, and the systems underpinning everything are constantly in flux. One day a trading strategy is producing consistent profits, the next, it isn't. Traders need to adapt in order to make money over the long term, or they risk getting phased out of the market.
Overall, the majority of traders make losses because they fail to prepare for the challenges of the market. By educating themselves, developing a solid trading plan, and planning out decisions beforehand, traders can improve their chances of success and avoid common pitfalls.
We hope you enjoyed! Please feel free to write any additional tips or pieces of advice in the comments section below!
1) Risk Management & Size that’s it, all others you will figure out if you can keep your money $. >Overtrading is not what people say, probabilities are in favor of the ones who makes more trades no question about it. But if you’re doing it REVENGE TRADES its a different ball game
SevenKilobyte
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@Rogerio_Ambar Thank you. Is there a resource that you recommend for learning risk management and position sizing?
moonypto
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@SevenKilobyte, The Most Important Thing by Howard Marks
IronMan_Trader
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@SevenKilobyte, it all depends what do you trade and what are you looking for:. 1) Stocks / DayTrading / Investing = Look for Van Tharp - R units (R:R) 2) Options Buy Side (Buy CALL/Buy PUT) = DT, max 3%-5% my Account Size / Profit +20% / Loss -30% (my simple rules) 3) Options Sell Side (Collect Credit/Selling PUT/CALL) = Keep Theta between 0.2%-0.5% my Account Size, Selling Delta 5/10/15 on 45/55 DTE = Profit 50% / Loss -200% and dont keep it in the trade if reaches 21DTE, just roll, close and look for another one. *DTE = Days to expiration
@Vibranium_Capital, no. A day trader is someone who opens and closes trades mostly within the same day (if a trade is going fantastically he might let it run over night once in a while). A daily swing trader is someone who swing trades on the daily timeframe. The first one will typically execute several trades a day, while the second will have a few trades a week with a trade duration going from a 2-3 days to a couple of weeks. Not at all the same ball game. Day traders are usually on the bi-hourly or hourly timeframes. Anything lower than that and they become scalpers in my book.
>Overtrading is not what people say, probabilities are in favor of the ones who makes more trades no question about it. But if you’re doing it REVENGE TRADES its a different ball game