All traders have loses, even successful and profitable traders. So to help you become a more successful trader and reduce your trading loses, here are 30 reasons why traders lose money.
This article will cover:
- Reasons traders lose money from actions before they even start trading
- Reasons why traders lose money when trading
- Reasons why traders lose money after trading
- General reasons traders lose money
Reasons traders lose money from actions before they even start trading
Don’t understand how the market works
Not knowing how things work is probably the main reason why traders lose money. If you have no idea of how the market works, I have some good news: it’s easily solvable. Focus on the essentials and learn about things like stocks, crypto, forex, and asset classes in general.
2. Uneducated on trading
Most traders lose money because they haven’t acquired enough knowledge to trade successfully. If you’re uneducated on trading, you might find it interesting to learn how to do it before you even start. We won’t lose our boyfriend until we get one, right? If we learn how to have a healthy relationship, we’ll probably have a healthy relationship (unless he is the jerk).
3. Don’t understand historical price action
This is another reason traders lose money that is also related to knowledge. Understanding historical price action and trading charts will help you know better when to enter and when to exit a trade. Traders who don’t study lose money every time.
4. Don’t have a clear strategy
This is a big WHY traders lose money. Defining a trading strategy is essential if you don’t want to keep on losing. There are several strategies that you can choose from. You’ll find the best one by measuring what works for you, based on your failures and success. It’s just like choosing the cutest dress of the wardrobe!
5. No trading plan
A plan is similar to a strategy but broader. Here’s a basic idea that you can adapt based on your needs: first you think on why you should start trading, then you study the different trading classes, set your trading style, and define your budget. An example of a plan – in this case, a pre-dating plan – is this: “I want to look gorgeous tonight at a party because I want to feel good about myself. That’s why I’ll put on this deadly make-up shadow, wear this cute dress, and just be myself.” Got it?
6. Low capital
This is terrible news for those who want to start trading with £10. I confess I started trading with little money, but I was faced with losses always. When I profited, I only got a few pence. Bad, right? That’s why I recommend that you start trading with at least £1,000, this way you’ll be able to trade with more diversity, lose less money, and feel like you’re actually profiting.
Related reading: How Much Money Do You Need To Start Trading?
7. Fear of failure
Some traders lose money because they don’t trade. That’s the thing: wouldn’t you prefer that the money you keep there, just laying around the house, multiplies itself in the stock market? Sometimes we’re too afraid to fail. Once you have enough knowledge and money to trade, there is no excuse not to do it!
8. Personal predictions
Following your guts is excellent when you are meeting someone for the first time. Before you trade, though, don’t rely too much on these personal predictions. When you become a seasoned trader, I’m sure your guts will tell you some great stuff. Traders should start trading, relying only on their knowledge and rules. Personal predictions only predict failure to the unseasoned trader.
9. Unexpected events that never happened before
If you had a bad experience before, it doesn’t mean it will happen again. If the market is saying that the stock price is dropping in a way it never did before, you should listen to it! This comes with a little practice, and you have to identify the opportunities. Unexpected things can happen and WILL happen. Don’t ignore the stop losses. If the stock price drops closer to the stop loss, it might not recover as it did once. Every trade is unique.
Reasons why traders lose money when trading:
10. Poor discipline
You probably have a plan by now. You defined your strategies and your style. However, another problem came up: you don’t seem to be disciplined. Traders who don’t stick to their plans lose way more money than those who do.
11. Overly emotional
Your emotions may affect the way you deal with trading. Believe me, I know. I’ve written a whole set of articles about it. Emotions can ruin you. A broken nail CANNOT be the reason why you’re suddenly interested in trading a large sum of money. Nor is the ending of a great relationship. When we enter the trading realm, we must arm ourselves with a new mindset and forget about everything that makes us overly emotional.
12. Trade too big
Even the most experienced traders are cautious when they trade too big. Most of them have lost thousands of pounds in the beginning, because they weren’t wise enough to trade too big. We are always prone to lose money, that’s why the rule is: don’t trade big if you don’t want to fail big.
13. Don’t follow their trading rules
Some traders create their perfect plans and strategies, have everything in their hands, the mindset in the right place but… they forget to follow the rules. This is no party, darling! Trading is as critical as raising your kid: it involves money, care, perception, and RULES. Maybe it’s not as hard as parenting, but it can be as life-changing! So… follow the rules you placed for yourself – or these rules for beginners – and STAY DISCIPLINED.
Whenever you realise that you failed in trading stock, don’t be illogical and let it run for too long! That’s what loser traders do. Take your money out of the market, admit it was a mistake. Your money will be better traded somewhere else!
No one likes to be wrong. I get you, sugar. I’m sure you’re almost always right when you’re on a fight with your boyfriend. Yet, whenever you feel wrong, just admit it! If having an inflated ego in a relationship is bad, being the same way in trading isn’t good either. It might lead you to lose more money than you could have imagined.
16. Moving stop loss
Sarah realised she was losing money. Sarah is not worried because she has a stop loss. This way, she’ll only lose a pre-determined amount of money before selling the stock she bought. Sarah is being rational, of course, but many traders are not. They move the stop loss too often because they don’t want to accept selling the share for less than what they’d paid for it. Then they keep on losing more and more. This is related to lousy discipline and sticking to a plan.
17. Fear of loss.
You see, everything is going well. “Too well to be true,” you might think. And then comes the fear of loss. Taking too early on winners is one of the dumbest reasons traders lose money. Everything is doing just fine, but you’re afraid that this might end badly somehow. The secret to fighting this is studying the market, and the common mindset mistakes you can make. Don’t rely only on your guts.
The sentiment of greed may lead us to poor risk management – which means, we bet too big and think that we’re invincible. Greed is also a cause of losses when the trader sees profits rising and, even knowing something might go wrong, she chooses to keep the trade until she loses everything. Be rational, and don’t do this.
Do you like to play games with your friends? Games are fun, but some people are so competitive that they ruin it for everyone. If you’re like this, remember to forget competitiveness when you start trading. Traders who are too aggressive try to “beat the market,” as if it was possible. Surprise! They lose money.
Overactive traders are impatient. They chase trades instead of waiting for the correct entries and become addicted to trading as if they were gambling. This type of trader loses money because they don’t wait for the right opportunity, they don’t study, and are effusive.
21. Lack patience
Take it slow, sugar, trading isn’t for children. Traders who hope to see profits too quickly don’t last long. Have you ever tried to read a Jane Austen book in less than two hours? You may have done it, but I’m sure you won’t remember the story for too long. Loser traders lack patience. They are the ones who buy those miraculous courses and formulas.
If the market suffers from a change that you haven’t predicted, fear of missing out (FOMO) can lead you to sell your shares for a lot less money than you bought them. You may also feel the urge to trade too much because you fear you’ll lose a” great opportunity.” Either way, you’ll lose. Never trade when you have negative feelings like FOMO on your mind.
Your plan and rules are set. Your wallet is going well. Then you think: “that’s it!”. And this is the moment when the indecision attacks, ladies! Some traders may lose money because of it, but not you. You have studied for days, subscribed to my email newsletter, watched tons of videos… You’ll remember me, and you won’t listen to indecision’s words.
Reasons why traders lose money after trading:
24. Don’t save money
After trading, loser traders do anything but saving. They get their profit and go to parties. They buy TVs, clothes, make up. That is one of the reasons traders lose money. You should have a respectful relationship with the money you trade. It was so hard to follow the strategies, plans and be disciplined… Why throw all that away?
25. Reward too quickly
This is an example of auto sabotage. Many traders do everything right, but, in the end, they don’t trade their profit again, neither build a contingency plan. Knowledge and safety are vital at first. You’ll gain experience when you trade your capital + your earnings because you’ll have more money to try new trading styles and investing in courses. You’ll earn safety once you build your contingency plan. THEN you reward yourself.
26. Don’t track what is working
Are things going well? That’s so great! Tracking your trading is now a necessary step if you want to stay successful. A trading journal is an excellent way to do it – I have one myself, and it’s as essential to me as my make-up kit. True.
Related Reading: How A Trading Journal Helped Me Double My Profits
27. Don’t track what isn’t working
This is pretty much the same as the tip above (but sadder, because in this case, things aren’t working). If it isn’t working, you also HAVE to track. The trading journal helps you with that too. The ups and downs of my wallet are crystal clear whenever I take a look at my trading journal.
General reasons traders lose money:
28. Doing it alone
Think for 5 minutes: do you surround yourself with well-succeeded people? Who are they? If there is a trader you admire, talk to this person. Be their friend, ask them questions… Isn’t it way better when we go out shopping with some girlfriends? They help us see the bigger picture AND the details. They may seem what doesn’t fit us in a glance. Alone, we struggle to see what’s best for us.
Trading is not math. Those who think that reading tons of books is enough to trade the market for years will fail miserably. This is the reason why some successful traders once failed later. They stopped learning. You have to keep in mind that trading is trendy, that stocks rise and fall, that companies come and go. Never stop growing and learning about trading.
30. Buying a system
Systems don’t work – knowledge, education, and experience are what you need. Think for a second: if trading and get-rich schemes worked, how come there are so many unsuccessful traders out there? Many people create fault-proof systems that they say will make you wealthy. I know this won’t be a problem for you, girl. If you follow this blog, you already know that to be successful, we need to work hard and sacrifice many shopping sprees.