Trading is a tough business and most people who start in the business lose money. Indeed, forex and CFD brokers in Europe are mandated to have a banner on their websites about the percentage of traders who lose money.
And these numbers aren’t small at all, really. In fact, they might even be scary to look at. Therefore, in this article, we will look at some of the most popular reasons why more than 90% of new traders will lose their money in trading (if you were wondering what percent of day traders lose money, now you have the answer).
Don’t worry, in addition to explaining why so many traders (especially new ones) lose money, we’ll also tell you how to avoid these traps!
Table of Contents
Walk before you run
The most common reason why many traders lose money is simply that they want to become professional traders without learning more about it first. This is mostly because many traders start trading when they see an advert talking about trading (or extremely favorable conditions, such as in early 2020..but this is the next point). These ads are in all platforms like Google, Facebook, and television.
After spotting an ad and learning more about its potential, they open an account and start trading. They do all this without even learning the differences between assets and how trading works. Other people start trading after seeing the hyped stories of millionaire traders on television.
Solution #1: train yourself properly
Therefore, we recommend that you take time before you start trading. A good place to start is to look and have a good understanding of the five key stages that traders go through. Knowing these stages will help cushion you from the challenge of losing money as you start your trading career.
The next step to avoid losing money as a trader is to learn the details of trading. Some of the top concepts that you can use are:
- Asset types – This is where you look at the various asset types in the market. The most popular asset types in day trading are currencies, cryptocurrencies, exchange-traded funds (ETFs), bonds, and stocks.
- Fundamental analysis – This is where you use news and economic events to determine the future direction of an asset.
- Technical analysis – This is where you use technical indicators like the moving average and the Relative Strength Index (RSI) to predict the future direction of an asset.
- Price action analysis – This is where you use chart patterns like the ascending and descending triangle and head and shoulders to predict the future direction of an asset.
- Risk management – Here you will learn more about how to manage your risks in day trading.
- Money management – This is the study of how to use and allocate your money in the financial market.
- Strategy development – Most importantly, you will learn more about strategy development and how to create a trading plan.
How to train yourself as a day trader
Learning about trading is not easy.
Indeed, in most cases, the process takes months and even years to master. Yet. it is one of the best ways of not being among the 90% of traders who lose money. As such, you should learn how to walk before you run in day trading.
Fortunately, the learning curve about this has been made easier by technology. Today, you can find thousands of books on trading on website platforms like Amazon. You can also enrol in trading courses on platforms like Coursera. Further, you can find free trading resources on platforms like YouTube to learn more about trading.
We also have two solutions for you.
In a first phase you can follow the live broadcasts of TraderTv.Live to understand the mechanisms of the markets. Once you are familiar with it, you can take our training program and start your trading business.
Fear of Missing Out (FOMO)
The second most important reason why many traders fail is the Fear of Missing Out (one of the most tremendous psychological mistakes you can make). This is where they see other traders doing well and decide to get into the business as well.
This trend became popular among traders during the coronavirus pandemic as cryptocurrencies and meme stocks surged. As this happened, media companies like Bloomberg, CNBC, and Business Insider started talking about how ordinary traders were making a fortune in the market.
Other retail traders get into the industry just because they saw their friends or relatives make money in the market. As such, they move their money to the financial market without having a good understanding of how the industry works.
Another way of FOMO in trading is when a trader will see a financial asset rising and decide to invest in it without doing some research about it.
Solution #2: avoid FOMO in trading
You can avoid FOMO in trading by doing several things. First, ensure that you take time to learn the dynamics of the financial market, as we have described above. Second, always seek to understand the reasons why an asset’s price is rising or falling before you jump in. Third, always protect your trades using a stop loss and a take-profit.
Endless strategy changes
The next reason why more than 90% of all traders lose money in trading is that they endlessly change their strategies. This is common among new traders who are still learning about the industry.
A good example is a trader who starts using technical indicators like moving averages and Relative Strength Index (RSI). As they learn more about trading, the traders start changing their strategies.
Solution #3: less is more
You can avoid this by taking time to learn more about trading. As you do this, you should identify the best strategy based on your risk preference. After this, you should spend a lot of time on a demo account practising.
Doing this will help you master one method of trading and be good at it. Keep this in mind: it’s better to master well and profit from 2/3 strategies than to use 10 and lose as much (or more) than you gain. The more strategies you use at once, the more complicated it is to manage them.
It will also help you simplify your trading and help you identify trading opportunities while doing relatively easy things. For example, instead of using ten indicators to find a signal, having a simple strategy will help you find signals using one or two indicators.
»Tons of Tools for Technical Analysis«
Summary
More than 90% of traders lose money in their first days of trading. It should not be like this. Indeed, in my many years in the industry, We have seen many people come and go. In this article, we have looked at the three main ways why many traders lose money and how you can stay safe.
External Useful Resources
- Do 90% of day traders really lose money? Quora
