Top 6 Reasons Traders Lose Money
Top 6 Reasons Why Most Stock Market Traders Lose Money
Many people think trading is the simplest way of making money in the stock market. Far from it; I believe it is the easiest way of losing money. There is an old Wall Street adage, that “The easiest way of making a small fortune in the markets is having a large fortune.”
Every minute more than 150 Million Dollars change hands in the electronic index futures markets like the e-mini S&P and e-mini NQ. You can win or lose thousands of dollars in a few minutes; the futures markets can make you rich in a few weeks or months or wipe out your account with no mercy.
If you want to compete in the “game of games” and play against the best traders in the world, then you need to get ready. Too many gamblers are entering the arena without any plan or strategy, completely unprepared, and that’s why they lose.
Let’s take a look at the reasons why traders lose money:
- Lack of a Trading Plan
- Lack of Discipline to Follow the Plan
- Failure to Control Emotions
- Failure to Accept and Limit Losses
- Lack of Commitment
By all means you have to avoid these mistakes if you want to win.
A Trading system will dramatically increase your chances to succeed in trading, because it eliminates five of the top six reasons why unprepared traders fail.
Here’s how a trading system eliminates 5 of the 6 top reasons why traders fail:
Solution #1: Having a trading plan
Having a trading system means having a pre-defined set of rules you have developed to guide your trading. Therefore you HAVE a trading plan, eliminating the No.1 cause for failure.
Solution #2: Following the trading plan
The easiest way to follow a trading plan is to automate it. Almost every trading system can be automated, and you could let the computer trade for you. You won’t have to worry about your discipline any longer, as the computer mechanically trades every setup for you.
Solution #3: Controlling emotions
Trading with a system removes emotions from trading. If you don’t have a strategy and you try to make decisions when the market is moving, you are liable to become emotionally attached to positions. You may experience panic and indecision when the market does not move in your favor, as you do not have a prepared response. That’s when most traders lose their money. If you follow a system you will know what to do no matter what the market does.
Solution #4: Controlling your losses
You probably have heard the saying “Let your profits run”. Unfortunately most traders let their losses run. A trading system will get you out of a position when the predefined stop is hit. Unless you override the system to “give the trade a little bit more room” it will stop the loss and therefore limit your losses.
Solution #5: Commitment
You won’t believe how many traders show a lack of commitment and therefore lose money. Lack of commitment means that they stop trading after the first loss, and don’t give their system a chance to make back the money they lost. Trading is not a one-way street, and losses are part of our business. If you can’t accept the fact that there will be losses, you shouldn’t trade. Fortunately a trading system can help you to overcome this problem; an automated trading system continues trading according to the rules, and therefore adds much more consistency to your trading.
How to Choose Trading Systems that Work
There are literally thousands of trading systems online that claim to give a trader an “edge” over the markets. Some are decent, most of them are not worth anything, and some are even complete scams. The hardest thing for a trader to do is to sort through all of this information and find the true gems.
What is the Best Trading Systems?
You might be interested in Reviews of the Top 10 Trading Systems.