- Risk managment
- Trading basics
Why traders lose money: reasons
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Stock trading can be a great addition to your main capital. But only if you approach this activity responsibly. After all, the statistics are inexorable: according to various estimates, 80-85% of intraday traders suffer losses in the stock markets. 70% of them leave the game within the first year, and 90% do not survive to the third. Why is this happening? Let’s look at the main reasons why traders fail on the stock exchange.
Why do beginners lose money?
Do you remember your first working days after university? Surely, you did not become an expert in your field in a month and developed your skills gradually. It may have taken you years to develop your career. The first step for a beginner in stock trading is to understand that a trader is a profession. Therefore, as in any other job, beginners make typical mistakes, which, however, can cost them the loss of their trading account.
You don’t understand your own goals and objectives. You cannot enter the market without realizing what exactly you are looking for in a trade. Investing is related to trading, but trading is not always the same as investing. If you look at trading as buying a home without investing time, then buy and hold is the strategy you should stick to. You buy a Tesla share, gold or euro and just forget about it for a year in the hope that the asset will still grow in the long term. But you need to understand that the income from long-term investing will be less than margin trading.
But what if a large income is a key factor for you? Then you will have to work hard: read market news daily (and sometimes even hourly), track transactions, conduct analytics and increase the amount of knowledge about trading.
You have no theoretical basis. By the way, about knowledge. Trading is not a lottery or a casino where you can rely only on luck. Success in trading requires a deep theoretical understanding of the markets and instruments you trade. This includes fundamental analysis, technical analysis, risk management and many more specialized areas. The ParadTrade YouTube channel and trading training courses are dedicated to all this. And if you are unable to master the information on your own, then you can always order a consultation from a professional trader.
You haven’t opened any trades yet. But theory means nothing without practice, so it is important to practice the information received in real transactions. Are you afraid of losses? Not worth it! At ParadTrade, you can start with small amounts – for example, $5. You can also join our live trading webinars, where you can make trades with professional traders and learn from their example.
Why do professional traders lose money?
However, not only novice traders are exposed to losses. Moreover – most likely, during their career they have made a lot more of them than you think, because there cannot be a 100% understanding of exactly where the market will go. But professionalism comes with a willingness to learn from mistakes. Therefore, here are a few potential threats that experienced traders most often face:
Lack of trading discipline. Emotional control is essential in trading. Greed and fear are common causes of rash decisions and costly mistakes.
Greed has unrealistic hopes for immediate and greater profits. When these expectations are not met, they may take unnecessary steps when they really should have stopped.
Fear can also lead to catastrophic losses because it perpetuates panic. In moments of market volatility, panic-stricken traders take rash actions. But profits always flow from those who panic to those who remain calm. Panic pushes to prematurely reduce positions, which deprives the trader of the opportunity to increase profits or minimize losses when market conditions change. Accordingly, risk management should be based on a rational approach, and not on emotions.
The main rule: don’t panic, even when the market shows signs of volatility.
No capital restrictions for trading. Strict discipline is the key to success and this includes setting maximum loss limits at various levels. If failures occur in the first hour, maintain discipline and close the trading terminal for the rest of the day. Determine the overall capital loss limit at which you will review your trading strategy.
Accordingly, you should avoid you should avoid over-trading. This is a common mistake that traders often fall into after suffering losses. In an effort to quickly recover losses, they increase the number of orders or trade in larger volumes. This behavior can lead to permanent losses, as it often provokes impulsive and ill-considered transactions.
Ignoring market conditions. The power of rumors and forecasts in our business is greater than anywhere else. In fact, market sentiment can mean as much as actual events. Some traders fail to take into account broader market conditions or fundamental events that may affect their trading, resulting in unexpected losses even after conducting thorough technical analysis.
Commissions. Even if you follow the right strategy, your profits may suffer due to the nature of the company’s service you work with. Remember that commissions vary from broker to broker and they significantly affect the size of the deposit. This is especially true for active traders who trade a lot. Just imagine: if you make ten trades a day and are charged $5 per trade, that’s $50 a day in commission. If you trade the same volume for 21 days in a month, you will spend over $1000 in commissions! Therefore, ParadTrade offers its clients minimal commissions, convenient for trading in any volume.
How NOT to lose money in trading?
- Spend time on education. Seek to understand the reasons why an asset’s price rises or falls before you begin trading. Don’t make thoughtless trades – be guided by technical and fundamental analysis and stay up to date with financial events.
- Development of a trading strategy. A trading strategy is your guide to action, helping you enter and exit the market. Don’t forget about take profit and stop loss – orders to close a transaction, automatically placed at a predetermined price. They allow you to minimize losses in the event of unfavorable market movements.
- Copy trades. If you lack experience, you can take tips from more experienced traders by copying their trades for your own trading. For example, you can do this through the ParadTrade broker by joining our TIS system.
- Be realistic. Be careful about your trading decisions and your outlook on trading. Don’t expect to become a millionaire by the end of the year, but keep in mind the opportunities that online trading provides.
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