Hey friend! Let’s talk about trading today.
There is no doubt that trading can literally change your life and help you live your wildest dream.
You can buy that exquisite house, go on that vacation with the love of your life, and pay for that expensive car you have always desired.
Even though all these are true, the fact remains that trading and investing is not as easy as it is portrayed, if they were, there won’t be any poor person in the world.
So in this post, I will share the reason most traders lose money in the market and end up broke and frustrated.
In the same vein, you will learn a few tricks to make money and become a profitable trader.
Lack of knowledge
Many beginner traders after seeing the results of successful traders are pumped to jump into the market to make their own money, without a thorough understanding of how the market works and the principles to become successful.
As a result of their emotions and ignorance, they make costly mistakes and quickly lose money in the market because they are trying to trade what they don’t understand.
Poor Risk Management
Trading is a risk because anything can happen once you are in the market.
It is therefore important to note that risk is an inherent part of trading, therefore it is vital you learn how to manage it effectively so that you can protect your capital and maximize your chance of winning your trades.
Many inexperienced traders do not have proper risk management strategies, and these can be disastrous if not corrected.
Emotional decision-making
As humans, it is normal for us to be emotional because we are emotional beings. This is also the situation when w are trading.
We feel strong emotions while trading. However, it is important for us to learn how to manage our emotions and be more rational when making decisions in the market.
When many traders feel, overwhelmed, greedy or scared, they most times make poor decision which leads to massive losses.
Lack of discipline
One of my favorite trading quotes is “in a room of profitable traders, I want to be the most disciplined trader.”
Irrespective of what you have been told, the truth is that successful trading requires serious discipline.
Unfortunately, many traders find it difficult to maintain discipline when they are in the market because their emotions will not let them stick to their plan.
This can be really challenging when the trader is experiencing a drawdown or the market is very volatile.
Over-trading
One common mistake of many traders, particularly beginners and inexperienced traders, is the mistake of over-trading.
Most time, they do not allow their trade to play out completely. This can increase the chance of making losses, and paying more broker commission.
It is important you have a plan and clearly articulate your setup so that you can reduce the trades you take and increase your chance of winning.
Lack of a trading plan
The importance of a trading plan cannot be overemphasized.
A trading plan is a clear set of rules and guides a trader must obey before and during trades.
Without a clear trading plan, traders can easily make spontaneous and impulsive decisions that can lead to losses.
More so, a trading plan allows you to manage your emotions better because you are working with a list of clear rules that keep can keep you rational rather than emotional.
Not keeping up with important data and information
There are many factors that affect the movement of the market, this includes news, trends etc.
The reality is that the market is constantly evolving, and it’s important for traders to stay up-to-date with the latest developments in order to make a more informed decision and avoid unforeseen setbacks while trading.
Not cutting losses quickly or Using Stop Loss
It is not possible for a trader to avoid losses completely.
The secret of being a profitable trader is to minimize your loss and the impact it has on your account.
One of the best ways to achieve this is to be very decisive in the market.
Don’t hesitate to cut your losing trade or use a stop loss when you are trading.
Unfortunately, many traders hold onto losing trades for too long, praying and hoping a miracle happens and the market reverses in their favour.
And this can lead to bigger losses.
Not maximizing winners
Just as it is important to cut down your losses, it is also important to maximize your wins.
Well, many traders do not take advantage of this either.
This could be because they don’t have a trading plan, or they don’t know when and how to exit a trade.
Because they don’t have a plan in place, telling them when and how to exit a trade.
This could lead to you leaving money on the table while missing out on potential profits.
Not Adapting
Change is constant, and adaptation is critical for our survival as humans.
Therefore, adapting to the ever-changing market condition is critical for long-term success in the financial market.
Regimes change, trading edge disappears and reappears, and the systems underpinning everything are constantly in flux.
A trading strategy could be producing consistent profits in the market today and tomorrow it is not.
Traders need to be ready to adapt, learn, unlearn and relearn in order to make money for a long period. Or risk getting kicked out by the market
In summary, the majority of traders make losses because they are indisciplined, ignorant or fail to prepare for the potential challenges they will encounter in the market.
By educating themselves, developing a solid trading plan, and planning decisions beforehand, traders can improve their chances of success and avoid common pitfalls.
I hope you enjoyed this article, I really want to see you win in your trading journey.
Don’t forget to leave a comment, bye for now.