5/16/2024

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.

Lack of trading discipline

A trader must have a carefully developed trading strategy. It should serve as a guide to action, defining points of entry and exit from the market, as well as risk management rules. Accordingly, the trader needs a stop loss – an order to sell an asset, automatically placed at a predetermined price. It serves as a loss limiter, allowing you to minimize losses in the event of unfavorable market movements. It is also necessary to record the profit received in a timely manner, without missing out on profitable moments. By closing profitable trades, the trader ensures a stable income.

Panic tendency

Panic is one of the main enemies of an intraday trader and can lead to catastrophic losses. In moments of market volatility, panic-stricken traders take rash actions, effectively subsidizing cold-blooded players. Profit always flows 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 limits for trading

Strict discipline is the key to success, and this includes setting maximum loss limits at various levels. Limit your daily losses. 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.

Over-trading to cover losses

Over-trading 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 not only increases risk, but can also lead to permanent losses, as it often provokes impulsive and ill-considered transactions.

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