7 reasons why traders are losing their money

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⚠️ 7 reasons why are traders losing their money

Recently, I have received statistics from a popular international server Statista. After reading the statistics I came to the conclusion that in spite of being meant for Forex trading, the rules are more or less universal and applicable to binary options trading, as well.

These two sets of statistics indicate and explain why and how traders keep suffering losses as well as why other traders are profitable. Let’s take a look at the figures.

Most common reasons for trading losses in 2020 and 2020

First, I will show you why traders keep losing. The reason no.1 is too large a size of a trade (in other words, risking too much money). More than 44% of interviewees reported that excessive risking was the reason for not being profitable, a danger I keep stressing to the traders. I guess that all of you have at least once in your trader’s career played too high. Next time, you’d better not to do it!

Just compare: Only 18 % of the interviewees named a poor trading system (in other words, a bad strategy) as the reason for their failure. Thus, you can say that correct money management is even more important than your trading strategy.

Reason number 2: losing trade left to run too long. This is an issue binary options traders needn’t care about because binary options trading has no time limits and as such cannot be influenced by the trader.

However, when trading cryptocurrencies, Forex or CFD we do care. Therefore, I recommend you stick to Let your winners run, cut your losses short. Practically this means to set your stop-loss at a shorter distance than your take-profit. I personally use a trailing stop. This brings us to another reason (…. why traders keep losing) – no stop-loss in place, which results in a big loss before the trader is ever able to close the position.

Chart showing traders replies

The third most frequent reason (reported by 35% interviewees) was significant market moves, a phenomenon we all know. When trading based on the technical analysis, we tend to forget watching the latest market news. Suddenly the chart moves by tens of pips within a single minute, a result of which is our loss. Therefore, I recommend you read a news in the economic calendar (here). Although this calendar doesn’t contain all news, I believe that reading it will help you avoid at least half of significant major moves in the market.

Why are traders profitable?

Next, to why traders keep losing, the statistics indicate what is behind successful deals. I was a bit taken aback by seeing the significant market move as the top and most frequent answer (reported by 42% traders). Does this mean that these traders do their trading based on a fundamental analysis?

The second answer is directly related to what I mentioned a few paragraphs above. Up to 35% successful trades are thanks to the “Let your winners run” rule.

Why traders make money

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Unlike in the ranking of loss-making trades, “good system” (in other words, good strategy) is in the third place followed by luck.

Recap: What do the best trader do?

To make a brief recapitulation, below you can find five tips for trading both binary options, and Forex/CFD. It’s wise to stick strictly to these recommendations. It is the only way to boost your chances to be profitable.

  • 1) Don’t put at risk too large a size of your trade. Though you may find closing a gap a funny exercise it is definitely not a wise strategy. Sooner or later, it will let you down. Believe me.
  • 2) Watch carefully all the latest economic news. The failure to do so may cripple your trading.
  • 3) Before you plunge in live trading using real money, always test trading on a demo accountIQ Option offers its demo account for free. The same applies to each new strategy provided that you are not a novice in the business.
  • 4) Unless trading binary options, but CFD, put stop loss always in place. Ideally, set the stop-loss at a shorter distance than the take-profit.
  • 5) When trading keep your head cool and emotions under control not to lose your focus.

I hope you have enjoyed the article. I wish you best of luck and strong nerves while trading!

Author

More about the author J. Pro

Unlike Stephen (the other author) I have been thinking mainly about online business lately. I wasn’t very successfull with dropshipping on Amazon and other ways of making money online, and I’d only earn a few hundreds of dollars in years. But then binary options caught my attention with it’s simplicity. Now I’m glad it did because it really is worth it. More posts by this author

One Response to “⚠️ 7 reasons why are traders losing their money”

Good job. I have been running losses and almost giving up. After reading these posts, I am encouraged. More grease to your joints.
Percy

The 7 Biggest Reasons Why Traders Fail

Last Updated on February 27, 2020

My YouTube channel was created in 2020.

The first blog post on TradingwithRayner went live in 2020.

And along the way, I’ve interacted with thousands of traders and the truth is…

Majority of traders fail.

You want to be spoon-fed without doing the work

“Hey Rayner, which is the best moving average to trade with?”

“Can I use 2 ATR to set my stop loss?”

“Which indicator is best for Trend Following?”

Now, those are the type of questions I get each day.

But what’s wrong with these questions?

It shows signs of laziness, that you’re not willing to do the work — and you want to be spoon-fed.

And here’s the thing:

Even if I tell you a method, strategy, or indicator is the best, you won’t have the conviction to trade it, for long.

Because when the drawdown comes, you’ll abandon it and claim it doesn’t work. Then you’ll look for the next best thing and the cycle rinse repeat itself.

Do you see the recurring pattern?

You don’t validate your findings

You’re probably wondering:

“What does validate means?”

When you validate a strategy, it means you’ve tested it and know that it makes money in the long-run. (This can be done via backtesting, forward testing, etc.)

And here’s the thing:

Most traders are not willing to validate their findings. You don’t want to do the work. You’re not willing to spend the time to figure out whether something works, or not.

Instead, you want to “copy” the strategy of other traders and hope things turn out fine.

Unfortunately, that’s not how it works.

Because if you don’t validate your findings, you won’t have the conviction to trade it when the drawdown comes (I can guarantee it).

But if you do the work, validate your findings, and know you have a trading strategy that works — it’s a gamechanger for you.

You minimize the fear of losing because you know your trading strategy has an edge in the markets.

You minimize the fear of the unknown because you know what’s your maximum drawdown, average winning rate, losing rate, risk to reward, etc.

You won’t constantly look for the next “best thing” because you have something that’s proven to work.

In other words, if you validate your findings, you increase your odds of becoming a consistently profitable trader.

You get swayed by the noise the out there

Do you know there are 1.7 billion websites?

Yes, you read me right. Billion with a B.

So, when new traders want to learn about the markets, they get overwhelmed!

You’ve got stuff like Forex, Options, Stocks, Futures, Indicators, Price Action, RSI, MACD, Elliot Waves, Fibonacci, Stochastics, Pivot Points, etc.… and I’m just scratching the surface.

Where do you start?

That’s why if you want to learn how to trade, you must start with the end in mind.

This means you must know what’s your end goal and then work backwards from there.

Here’s an example:

  • Let’s say you have a full-time job and want to trade part-time
  • Your goal is to beat the markets earning anywhere from 10 – 20 % a year
  • You want a trading system that’s rule-based so you can follow it consistently without second-guessing yourself

Now once you’ve defined your goals, it helps you filter out the noise and focus on the things that matter.

In other words, you can ignore Price Action Trading, Day Trading, Elliot Waves, Chart Patterns, Support and Resistance, etc. because it’s subjective and not what you want.

Instead, you should focus on systems trading on the Daily timeframe (and above) as this meets your criteria.

Can you see how powerful this is?

You’re doing it alone

Remember when you were in school?

You had a teacher for every subject to learn from.

Outside of classes, you had a coach (whether it’s football, basketball, and etc.) to provide feedback so you can improve your game.

And even when you’re “chasing” the girl of your dreams, you have buddies (who are expert at the game), giving you advice, tips & tricks on how to win her over.

Clearly, at every stage of your life, you had someone experienced to give you feedback, advice, and knowledge.

But when it comes to your trading career…

…you’re doing it alone.

And by figuring things out yourself, you face questions like…

“Does this trading strategy work? Do I have an edge in the markets? How do I know what works and what doesn’t?”

Now, I’m not saying you can’t make it on your own.

You can… with hard work, determination and paying HUGE fees to Mr Market.

How much time, effort and money you’ll save if you have a mentor?

In case you’re unaware…

Paul Tudor Jones had Eli Tulis as his mentor.

Jerry Parker had Richard Dennis as his mentor.

Stan Druckenmiller had George Soros as his mentor.

Every one of these legendary traders had someone to guide them to take their trading to the highest level.

You don’t have the correct expectations — here’s the reality

Let me share with you a secret…

During my university days, I had a dream of becoming a full-time trader straight after graduation.

No bosses to answer to.

No need to work for any company.

No need to participate in any politics.

My plan was to take my entire savings of $5,000 and borrow another $5,000 from my dad (for a total of $10,000) to trade full-time.

I figured if I could make $2000 per month, then it’s enough for me to survive and fulfil my dream.

And that’s what I did.

But 6 months into my “trading career”, things didn’t work out the way it’s supposed to.

Not only was I bleeding my trading account, but I also relied on my parents for financial support.

It’s then I realized I didn’t have the correct expectations to start with.

1. No proper skillset

Here’s the thing…

I attempted to trade full-time without having the proper skill set.

Let me ask you, would you allow a surgeon to operate on you if all he/she did was read a few books?

2. Lack of trading capital

If you think about it, I needed a return of 30% each month to meet my living needs (which isn’t realistic).

This resulted in the “need to make money” syndrome and caused me to break my rules — and led me to take on losses larger than expected.

Trading isn’t a get rich quick scheme.

It’s a money-making skill to grow your wealth steadily in the long run.

You don’t have this most important thing in trading

I used to think…

Trading is 80% psychology.

Trading is about following your plan.

Trading is having proper risk management.

But, it’s useless if you don’t have an edge.

This hit me hard when I read Market Wizards and Jack Schwager said something along these lines…

Imagine you’re going to gamble in a casino.

You adopt proper risk management and keep your bets small.

You psyche yourself up with positive affirmations like…

“Lady Luck is shining on me!”

“I will make a killing today.”

You’re still going to lose.

Because you don’t have an edge over the casino.

Without an edge, even the best risk management and psychology won’t save you.

The bottom line is this…

If you want to be a consistently profitable trader, you must have an edge.

You focus on tactics, not principles

First, let me explain what tactics are.

Tactics refer to things like entries, exits, best indicator settings, etc.

The problem with tactics is you’re not seeing the big picture (in other words, missing the forest for the trees).

For example, a Trend Following strategy is backed by 5 principles…

  1. Follow the price
  2. Buy high and sell higher
  3. Trade a variety of markets
  4. Risk a fraction of your capital on each trade
  5. Trail your stop loss

If you follow these 5 principles closely, you have a good chance of making money in the markets.

But, if you focus on the tactics like the entry point, stop loss or chart patterns, then you’re missing the big picture.

So the lesson is this:

Always focus on the principles first, not the tactics.

Because you can have the “best” tactics in the world, but if it’s built on wrong principles — you’ll still end up with junk.

At this point…

You’ve discovered the biggest reasons why traders fail and how you can avoid it.

Now here’s what I’d like to know…

What’s the biggest takeaway you had from this post?

Leave a comment below and share your thoughts with me.

7 Reasons Why Most Traders Fail

Most traders fail for all the same reasons. This is an area I consider myself an expert in. Why? Because I have made all of these mistakes and more than once! Statistics show that upwards of 90% or more of most traders fail! The biggest mistake most traders make is believing that its when to enter the market that is the most important part of trading. To some degree they are correct. It is important to know when an optimal time to buy or sell may present, depending on the type of strategy and market that your trading. More importantly though is how much you are willing to risk to find out if your trade will make you money or lose you money. Trading is a losers game, when you understand that statement you realise that every trader needs reliable trading rules to be competitive in any market, at any time.

WANT TO WIN

Most traders approach the markets with a mindset of winning, how much money they can make, and what is the best way to try and time getting into the market. A mindset of winning goes against the psychology that is required for successful trading and is a main reason why most traders fail. In trading you may have a system or methodology that has a 70% success rate! If you have a test sample of a 100 trades, hypothetically you could have a string of 30 losses in a row! If you’re focused on winning, and not on doing the right thing, in terms of executing your trading plan, you may struggle to take that next trade. Wanting to win is in direct conflict with the trading process. You need to understand that many trades may be losers, but if your money management strategies are intact, they will keep your losses smaller than your wins. Winning or losing on a particular trade have no bearing on your overall performance. Focus on flawless execution of your trading plan.

“Most traders fail for almost always the same reasons. Hope, fear, greed and pain are four of the emotions that will cause traders to function irrationally…over and over again. I know, because I’ve done it!” Stacey Burke

WANT TO BE RIGHT

Similar to wanting to win, wanting to be right is in direct conflict with how a successful trader thinks and acts. We are wired to want to be right. Traders need to understand that following the trading process, even when it’s uncomfortable and goes against their psychology is the primary objective. You cannot be attached to individual trade outcomes. Each trade is just another trade. If you find yourself “wanting to be right” on any particular trade, you are entering into the realm of forecasting or predicting, another area why most traders fail. You have to accept that the markets are essentially random. I know there are many of you out there who may disagree, but if that wasn’t true, there would be a lot more people who were making millions off the market.

“The simpler it is, the better I like it.” Peter Lynch

TOO FOCUSED ON MAKING MONEY

Isn’t that what trading is all about? If you have a trading system that has a 60% success rate, and you take a 100 trades, how will you feel if you have 40 losing trades in a row. Chances are you wouldn’t get to 40, I am sure you would drop that system after 9 or 10 losses. The perception is that if you’re at the computer, or you place a trade, that you need to make money that day, and right away. We seek some kind of immediate validation to our decision that we want the market to confirm with showing us a profit as soon as we click the mouse! Making a profit is a byproduct of successfully following your trading system. assuming that you have defined an edge in the market and that you are following that plan, over time you should be able to demonstrate that edge with more profits than losses. If not, re-check your methodology, and keep accurate running records of all your trades so that you can monitor your trade expectancy and know that it is positive. Most traders fail because they are focusing on how much money they can make, they don’t manage the downside and they don’t understand their trade expectancy.

TOO FOCUSED ON ENTRIES AND EXITS

If they can only find out where to enter and exit, that’s all they need! They search for the “Holy Grail” of trading. Minimal draw downs and maximum gains! It can definitely pay to have an edge when entering the market, but again, with correct money management strategies, even an average system can perform well over time. The entry and exits are important, but they are only a component of a well oiled and executed trading plan.

DON’T UNDERSTAND RISK MANAGEMENT

Often the first thing a losing trader thinks about when he is looking at a trade setup is how far the trade may go and how much money he or she can make! This is another reason why most traders fail. The greater the potential reward the greater the amount of risk the trader must take on. It’s a direct correlated relationship. Regardless of the setup or trade signal that presents, all trade opportunities are equal. The outcome is random so in order to avoid risk of ruin, we must implement our money management rules to ensure our survival and an attitude of being the best loser! Always focus on the downside and the upside will take care of itself!

DON’T HAVE A TRADING PLAN

Attempting to trade the forex without a trading plan is nothing short of suicide and yet it’s one of the most common mistakes forex beginners make. If you’re wondering why 90 percent of forex beginners lose money trading currencies, this is the reason: because they don’t have any trading plan whatsoever. Your trading plan should articulate your money management strategies, why you would enter a trade, how you will manage that trade, and why you would exit that trade. Your plan should also include detailed and accurate record keeping to keep track of your system’s trade expectancy, and also a trading journal so you can keep a written journal of your trading, emotions, what you have done well and where you can improve.

Not having a plan is why most traders fail. Trading can be an emotional business, but it shouldn’t be. What type of trading personality do you have?Factor in your personal circumstances, your objectives, and build a trading plan around that, and then test it out. Then keep to that plan while you’re trading and evaluate it and continuously improve upon it. That’s how you go from a losing forex gambler to successful forex trading professional.

DON’T UNDERSTAND TRADING PSYCHOLOGY

How you feel about and respond to your trading is a major part of the trading process. You can’t control what the market is going to do, but you can control how you manage your emotions and your approach in preparing yourself and your mindset.

The four emotions of trading hope, greed, fear and pain are always knocking at your trading room door.

Fear – some people find it hard to make the transition from using a ‘demo’ account with ‘play money’ to a real live trading account. When their own money is on the table, they can suffer anxiety that cripples their trading. Fear of getting in, fear of missing out, fear of getting out too soon. This is again where your trading plan and journaling can help you. My 7 Step Daily Routine For High Performance Traders is aimed at helping traders develop their understanding about themselves and structuring themselves with high performance habits.

Greed – when your trades are going well, it’s only natural to be excited about the potential for even greater gains. At these moments, it’s vital to stick to the rules of your trading plan: if the signs indicate it’s time to close your trade and take your profit, don’t keep holding on in the hope of making even more money.

ope is a feeling of expectation and desire for a certain thing to happen. It’s an individual’s desire to want or wish for a desired event to happen.

Hope may be the most dangerous of all human emotions when it comes to trading. Hope is what keeps a trader in a losing trade after it has hit the stop. Rest assured, when your thinking slips into hope mode, the market will punish you by taking your money.

Pain is the emotion you have when your consistently losing and you’re trading seems to be going against you. In the forex markets the principle of maximum pain applies. This means that, over the short-term, prices will move to levels that cause the maximum pain to the most people. Most traders fail because they aren’t ready to cope with any of the above listed emotions and when they experience maximum market adversity, they react and trade impulsively and irrationally.

Successful trading requires “KAIZEN” – constant improvement!

I hope you enjoyed this post! Did This Help You? If so, I would greatly appreciate it if you commented below and shared on Facebook

Here’s to YOU and I becoming BETTER traders!

PS: If you’re struggling with being consistent in your trading and you don’t have a step-by-step BLUEPRINT for your trading success… Check out my 7 Step Daily Routine For High Performance Traders CLICK HERE FOR INSTANT ACCESS

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