Trading is full of ups and downs. In fact, that is pretty much all that it is, the markets will continue to move up and down based on the strengths of the currencies or assets that are being traded. The sad thing is, around 90% of all traders will lose, which means that only around 10% of people are winning, so why is this? Let’s have a little look at why most people tend to lose when trading.
Lack of Equity
We will get this one out the way to begin with, we are constantly seeing more and more brokers allowing people to trade with increasingly small amounts. Some brokers are now allowing you to sign up and trade with just $1 or $10 which is great for accessibility, but not great for keeping accounts active. You need at least a certain amount in order to take risk management and money management precautions. The markets will always turn, no matter when you put in your trade, however no person willing to trade will put enough in to be able to cope with the longer trends, so this is why risk management is key and why having such small amounts can make it almost impossible to succeed.
Not fully Understanding Indicators, Market Entry, and Other Aspects
There are hundreds of people over the internet recommending different indicators to use, they are designed to help you analyze the markets. However, just sticking a lot of them on to the charts will not give you much indication of anything. In fact, it will most likely confuse you even more. Having indicators can be good but you need to understand what they actually mean, trading blindly on what others have told you or what an indicator tells you is not a good way of doing things. You need to ensure that you fully understand what you are looking at before you take action on any of the information that was given.
Blindly Copying Others
A lot of new traders are now coming into trading with the hope of not actually putting in the work, so they look to signal providers or a so-called mentor in order to get some trading signals. The problem with this is that they do not give you an understanding of why the trades are being made, this means that you are trading them completely blind, with no knowledge of the risks behind them. The majority of these signal providers are doing it to make money from subscribers rather than from their actual trading, these sorts of providers do not last long and eventually go bust, and so will those following them.
Not Sticking to a Tested & Proven Trading Plan
When you first start learning to trade, you are often told that you need to create a trading plan, this will involve your strategy as well as any risk management that you are going to put in place. Once you have one working, you will need to stick with it. As soon as you step away from the plan things can start to go wrong. Taking trades outside the criteria or risking too much on a single trade are both recipes for disaster. Once you have a plan, stick to it and don’t deviate from the pan.
A simple one, but a lot of people get into trading for a quick and potentially easy way to make a lot of money, this leads them to making trades far riskier than they should be, this will ultimately lead to losses. Risking too much portrayed, and putting on too many trades at once are two of the main mistakes being made and two of the main reasons why people end up blowing their account.
Not Using a Demo Account
Demo, demo, demo. This is one of the most used phrases when it comes to trading, you should always start on a demo account, learning the ropes, and testing your strategy. Those that decide to jump straight into live markets are destined to fail, they do not yet have a solid understanding of the markets or what causes them to move up and down, so not using a demo account is a sure-fire way to blow an account.
Having a Bad Day
Sometimes we just have a bad day, things are all going against you, your analysis was spot on, you checked your risk management but things just go the wrong way. This is simply a part of trading, the good news is that because you did everything right, your losses will be reduced and limited to a certain amount and this can just be put down as a part of trading. Nothing can be done about it but to move on to the next tread, just try not to allow it to cloud your judgment on your next trades.
So those are a few of the things that can cause traders to lose, there are of course other things that can cause you to lose, trading is all about planning, preparation, and risk management, get those right and you will have a fantastic chance to start making some money with trading.