Why Traders Lose Money

9 Basic Reasons Why 95% of Traders Lose Money

If you consider yourself to be serious about your trading. What you’re going to read next, will have a major impact on your success or failure as a trader.

Traders have been making these same mistakes since the dawn of modern markets and will be repeating them in the future for sure.

You can significantly boost your chances of trading success by becoming aware of these typical errors and taking steps to avoid them.

So do yourself a favor, and read it now.

1. You Have Insufficient Experience and Practice.

insufficient-experience-and-practiceWithout a doubt, the most expensive way to learn how to trade is through trial and error.

Discovering the appropriate trading strategies by learning from your mistakes is not an efficient way to trade any market.

That is why you need to learn from professional traders that have shown a proven success.

I also recommend you get some practice by opening a demo account at TD Ameritrade paper Money.

This is a trading application that’s available as a downloadable platform. You’ll have access to a virtual margin account and $100,000 of “play money.”

So Go Out There and Start Your Practice!

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2. Overtrading

OvertradingDo you know what is the simplest way to lose or burn down your account, even amongst the most experienced traders?

It’s Overtrading.

Now, overtrading has two aspects:

  1. The unjustifiable large amount of opening orders.
  2. A large number of hours in front of the screen.

As the research show, most of the problems in trading come from those two reasons.

Too many hours in front of the screen can weaken you intellectually and emotionally.

So your ability of proper analysis of the market gets lowered drastically.

And when there is nothing going on, there is a pressure to do something, even if it makes no sense.

The high number of entries, specially made by beginners, creates highly stressful situations, that that damages your concentration and proper analysis.

Overtrading cause’s emotions and those lead to wrong decisions.

And wrong decisions make you lose your money!

3. You Have No Clear Trading Tactics Proved to Lead to Success.

clear-planDo you catch yourself trading without a clear plan?

“Failing to plan is planning to fail” is an adage that holds true for any type of trading.

There are many trading strategies out there. Each one with different criteria.

Some traders will succeed with specific ones and not with the others and vice-versa.

It does not matter what trading method you use, as long it is stable and had proven its profitability for the long term.

4. You Have a Poor Trading Discipline.

Poor Trading DisciplineDiscipline is the cornerstone of profitable trading. Trading discipline is extremely hard to achieve.

Many traders end up losing money because they can’t follow their own trading plan. They see a couple of wins, believe they are invincible, abandon the plan as a result and end up taking crazy trades that only lose them money.

If you want to improve your discipline you need to take some steps. First, you need to be honest with yourself about how disciplined you are.

Trading Is Not a Hobby, don’t deceive yourself into thinking you made a good trade, when in actuality you may have simply gotten lucky.

You need to have a trading plan and follow it (we already talked about it in no.2). Honor your stops, because it will save you from yourself, and from making your mistakes bigger.

Take a giant step back from the intraday markets, and stop reading the economic news!

Reading economic news each day is something that many traders do, and it typically only causes them to second-guess themselves and (or) enter trades they otherwise wouldn’t.

Do not over trade.

One of the biggest weaknesses is a lack of patience. You sit in front of your computer screens waiting to trade. Because you already planned to trade, and you do so.

Too many hours in front of the screen can weaken you intellectually and emotionally.

So your ability of proper analysis of the market gets lowered drastically.

And when there is nothing going on, there is a pressure to do something, even if it makes no sense.

The high number of entries, specially made by beginners, creates highly stressful situations, that that damages your concentration and proper analysis.

5. You Have Poor Risk Management.

Poor Risk ManagementIf you want to succeed as a trader, you need to properly manage your risks.

You can do that in several ways; first, you have to know your personal risk tolerance. Know the math, what is the largest exposure you can to take before you ever go in a trade.

You have to know, what is the highest amount of money you are willing to lose on the trade. Only then consider the trade; if not, walk away.

Manage your trades carefully. Before you are making a trade, identify the point that clearly defines the trade is wrong. Always use a protective stop and know when you have to cut your losses.

Beware from personal “risk spike”. It can happen to anyone at any time, doesn’t matter if you are a new or experienced trader. You will suffer years’ worth of work in an instant.

It has nothing to do with sharp movements in the markets or the volatility of the markets; this is a personal risk management mistake (and a bad one).

a simple example to this personal “risk spike” will be: Instead of taking your usual position of 200 shares which puts 1% of your capital at risk, you load up, suddenly take 1000 shares on a specific trade, taking a position 5 times bigger, effectively risking 5% of your capital.

Remember: you win slowly but when you lose, you lose big time. And it will be hard to come back from it.

6. Trade by Your Guts – Intuitive Trading.

Intuitive Trading

Whenever you hear a trader or yourself talking about intuition or gut feeling to justify your decisions which aren’t based on sound trading principles or trading rules, you should know that’s when the disaster usually starts.

Intuition and gut feeling is what causes major losses. It is also used to explain yourself why you are staying in losing trades much longer than planned.

Traders use intuition to justify trades where they had broken their trading rules. Be honest with yourself, how often does that really happen?

This is why it’s so important to know your plan before you enter a trade. It will help you rational decisions based on your analysis which is not subject to emotions and wishful thinking.

This is why you always have to know when to get out before you get into a trade.

7. You Are Trading Against the Trend.

Trading Against the TrendEveryone is saying “The Trend is your friend.” You don’t want to trade against the dominant trend in the market because you will most likely end up losing money.

You need to “Cut Your Losers Short and Run Your Winners Long”.

The key is to follow the market, not force the market. You will make a larger and more regular profit if you sell or buy in the trend direction.

8. Failure to Use Defensive Stops.

Defensive StopsThere could be a lot of reasons why traders don’t use stops. It could be because you don’t have a game plan (which is the worse), it could be because you don’t know how exactly (also bad), or you are just lazy.

It doesn’t matter why you don’t use them, it’s crucial you start to use them as quickly as possible, because A Stop Loss or “stop” literally do what it says, “Stop Losses”. And it’s the best way to avoid riding losses.

With stop loss at your side, you will know the highest level of risk you will take.

This way you will be able to cut your losers short and to keep your winners long.

9. Stacking Further Losses to Losing Positions.

Losing PositionsOne of the most common trading mistakes is holding on to losing positions for too long.

Now, if you’ll cut your winners too early, you may not make a lot of profits, but, you can’t go broke as if you let losses run too long.

A disciplined trader will close the trade and take the loss, and will not hope for the best.

An even bigger mistake is to average down, which means you keep holding a lose position and you adding more money into it (a big mistake).

So the key is to be able to accept small losses as part of everyday trading.

Follow a trading plan that has a stop-loss order and to stick to it always.


You will not find one trader that is not guilty of these mistakes from time to time.

Trading is a complicated and challenging business requiring an ongoing commitment, as long as you will be able to minimize those mistakes, the better your trading will be.

It’s all right to make mistakes, if you aren’t making mistakes, you aren’t learning. Even the most successful traders are constantly studying, and looking for an additional edge that may help them make better decisions. But it is absolutely unacceptable to repeat those mistakes.

With that in mind, learn from all of those that made the mistakes and lose money. If you will do that, you will be in a much higher trading level. And hopefully, you will be a successful trader.


About the Author Investegies Team

Leave a Comment:

Chris Salamone says January 29, 2017

Lots of good advice out there but also do your traders lose money.

    Investegies Team says January 30, 2017

    Every trader loses money.
    But you need to be prepared with a game plan and set your stops correctly. That way you can cut your losers short and run your winners long.

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