Yes that’s right. More than 80% of traders and investors lose money in the stock market. I’m talking about retail traders here. The amateurs like you and me.
In this blogpost I’ll answer the question why so many traders fail and give you the simple solutions so that this won’t happen to you.
Most important advice for newbie traders
Don’t try to beat the market. The market is not something you should try to beat or counter. That just won’t work. The market is something you have to try to understand and you have to learn how to surf the waves of price movement.
It doesn’t matter to the market what you think will happen. It is also not a question of whether you are right or wrong. The point is that you profit in the long run.
Starting with too little money and betting too much
Many traders and investors will start this game in the hope of making money quickly. That is understandable. Because if you look at the marketing campaigns of brokers, there was a lot of emphasis in the past on trading with high leverage and the possibility of making large profits with small amounts.
Nowadays there’s a lot less of that due to the stricter regulations in this area, but I suspect that many novice traders still start with the wrong hopes and dreams.
Trading and investing is not a game that will get you rich quickly. It takes time and energy to become a good, but especially a smart trader .
Emotions, psychology and mistakes
The risk of starting with a small account and still opening large positions, is that you can lose all of your money within a few losing trades. In addition, you are probably way too emotional and anxious about your trades, because you have too much money on the line. Which means you will make mistakes.
This may sound a little contradictory, but as a beginner you should actually start with a higher starting capital. The higher your starting capital, the more trades you can make.
Certainly as a beginner you will not have a very high win rate and therefore also more losing trades. This is not a problem, as long as you use a healthy risk to reward ratio. But that is why it is important that you can compensate for those losing trades with more breathing room on a bigger account.
You also have to keep your trade size small. Opening small positions not only leads to fewer emotions when trading, but you also minimize the risk of large losses and blowing up your account.
Poor or no risk management at all
Another reason traders lose money is because they fail to implement proper risk management.
This is a deadly sin.
Your priority as a noob trader is to survive. You can be a very good trader and still lose all your money through poor risk management.
Golden rule: Learn to protect your capital first and then try to make a profit.
The smaller the amount of money on your account, the smaller the chance of success.
ALWAYS use a stop loss and don’t be scared t move it in profit or to break even if your trade is doing well. Choose a fixed percentage that you are willing to risk per trade. For example 1 or 2% of your capital.
Only take trades where you can grab a risk to reward ratio of 1:2 on average . That way you can lose 60% of your trades and still make a profit!
Some traders and investors just want to milk every trade. They don’t want to leave any money on the table. Because of this, they allow trades to run for too long and ultimately lose, because price changes direction.
Very simple: don’t be greedy. Be happy with the winnings that you take. Sure price can move on after you have made a profit, but please don’t look at that.
There are new opportunities in the market every day, hour, minute and second. Never look at what you could have won more on a trade if you had left it open. There is no point.
Another important reason why traders lose is that they are impatient doubters. This doubting mainly happens when they open trades that do not immediately move in the right direction and make a profit.
Then they close their position and 9 times out of 10 price turns again and they still would have made a profit. This is killing for your self confidence and it also makes you restless.
Stick to your trading plan and strategy. Take the trade and step away from it. By doubting and constantly switching you’re only lettting the spread and costs eat away your account.
Wanting to be right
I mentioned it briefly in my opening, but trading and investing is not about being right. Nobody (including the market) cares.
Losing trades are simply part of trading. You don’t have to worry about that emotionally. Ultimately, it’s about making more profit on your winners than you lose on your losers.
In the case of losing trades; take a good look to see if it met all the conditions of your strategy. If so, just say fuck it and move on to the next trade. If not, make a note of the mistake you made and learn from it for the next one.
Buying strategies and systems that promise you the moon
If it is too good to be true, it usually is. There is soooo much crap for sale. You should completely ignore systems, software and strategies that promiseyou will become a millionaire within a year or claim to have 100% accuracy.
None of this shit has anything to do with trading or risk management. Which means you will probably lose all of your hard earned money.
Often these systems and strategies are sold by failed traders, who can’t even trade profitably themselves.
Yes, there are certainly good trading courses to be found, but they will never promise you this kind of nonsense.
Use common sense and first try figure it out for yourself. All information about trading can be found for free on the interwebs. When you come across a strategy that appeals to you, you can always check if there are any known traders who offer more (paid) information about this in a normal way.
Moral of this story
80% of retail traders lose money and it’s because of this:
- Trying to beat the market
- Low starting capital + big trades
- Starting for the wrong reasons and expectations
- Poor risk management
- Wanting to be right
- Buying scammy systems, software and strategies
In particular, I would like to emphasize trading with a healthy risk to reward ratio. This was the deciding factor for me at the time, which ultimately lead to consistent profit.
In my free course I explain exactly how I do that.
For all reasons why you lose as an investor there is a simple solution. And I actually think that this article should go viral to protect newbie traders against losses…
So slam the social media buttons below! 🙂