HomeRISK MANAGEMENT5 Reasons Why Traders Lose Money

5 Reasons Why Traders Lose Money


Here are the 5 Reasons Why Traders Lose Money.

Trading too Soon

Trading real capital in the markets before you are ready can be very expensive. Before you begin trading you should have already back-tested your strategy if you are a swing trader or trend trader or used a simulator to trade if you are a day trader to learn to execute with speed if needed.

The foundation of a trader is created from first studying the historical price action on charts to learn the basic behavioral patterns of markets through different phases. Study can lead to theories that can be used to create and test strategies. Beginning to trade with no preparation almost guarantees failure.

No Trading System

Trading without a quantified system with an edge. A trader must express their trading strategy inside the context of a trading system with a watchlist, position sizing with entry and exit signals.

A trader without an edge is a gambler and random trades outside the context of a complete trading system are just random. Trading is not about predictions, opinions, and being right, trading is a business that requires a full system for execution and repeatedly taking trades that create good risk/reward ratios.

No Risk Management

Without managing risk through proper positions sizing, stop losses, and limiting maximum risk exposure a trader will eventually face the risk of ruin as the market moves against them or through a sequence of consecutive losing trades.

Risk management determines the long term survival rate of a trader even one with an early winning streak. Without proper risk management a trader’s account will not survive in the long term that’s Why Many Traders Lose Money.

No Proof of Concept

A trader should not trade real capital before they have proven the validity of their strategy on charts, back-testing, or a simulator. They should have a reason for their confidence in putting money at risk, what is the edge? Also someone should not try to become a full time trader until they are a successful part time trader.

Confidence should only come after competence is proven. Why do you think you will make money? What is your edge?

The Wrong Trading Psychology

The wrong mindset in trading can be very expensive as big losses happen to big egos. Fear causes traders to not take entry signals and not let winners run until their exit signal is triggered. Greed causes traders to trade far too big. Loss aversion causes traders to hold losing trades hoping they get back to even.

The right trader mindset is embracing uncertainty, following their system, and knowing their positive expectancy over a series of trades. Faith in their trading system and faith in their self to follow it with discipline is the core of proper trading psychology. Most trading stress can be solved by simply trading smaller.

Solve these five trading problems and your odds of long term trading success grows more in certainty.


Psychology & Discipline Rules To Deal With Losses

All traders have both wins and losses regardless of their strategy and system. Much like in sports traders don’t succeed on every trade just like baseball players don’t hit every pitch and basketball players don’t sink every basket.

Position Sizing Cheat Sheet

Position Sizing isn’t random. It’s calculated based on ACCOUNT RISK (AR) and TRADE RISK (TR). A formula controls risk so we know exactly how many stocks, futures contracts, or forex lots to buy on a given trade. There are many ways to calculate position size. Here are a few simple ones:

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