You have heard the stories of traders losing money in the markets for a variety of reasons. There are many reasons given to explain what happens but what they usually don’t tell you, is that up to 90% of day traders lose money.
Why does this happen and how can you prevent it from happening to you? We are going to examine the information available and find out what makes people lose money, what you can do to avoid that, and why lessons are important before trading.
We believe that you have little to fear when it comes to how many stock traders lose money since we know how it happens and how to avoid it.
5 Reasons Why Beginner Traders Lose Money
Let’s dive right in and answer the question ‘why do most day traders lose money?’
- Uneducated tradingTrading the markets without taking a course will not only make you ‘dumb money,’ but also make you an indecisive trader who suffers from trading remorse. This happens when a trade that you open does not immediately earn a profit and you start thinking that maybe you picked the wrong trade and try to reverse it.So, like any beginner, you close the trade and tell yourself you can pick a better one, only for the one you just pulled out of to start moving. This happens because traders take chances and try to trade without learning first.
We stress repeatedly that failure to learn trading first is how many stock traders lose money. Avoid being ‘dumb money’ and invest in a good education.
- Trying to beat the marketPitting yourself against the market is not the way to go. Befriending the market is what you need to do. How do you accomplish that? Well, you start by taking the best beginner courses you can find and ensuring that you do not trade too aggressively or go against trends just because you think you can beat the market.The uneven match will turn you into dumb money, which someone else will gain, at your expense. The day trading scenario is one of the few places in this world where you go with the flow, instead of being a rogue element.
- Low capitalIf you are looking to start making money as a beginner trading, then you are fooling yourself. Unless you copy trades done by experts or take beginner courses, the chances of you being wiped out remain high.Most traders start with low capital or borrowed money that they cannot afford to lose. The financial markets are known for being the playground of people with disposable income for a reason.
If you are trading using borrowed funds, your emotions will trip you up. Always have enough funds or enough knowledge to turn a small amount of money into a little bit more. That way you don’t lose money on stock trading.
- Poor risk managementRisk management is the key to surviving life as a day trader in the financial markets. You could be the world’s most skilled trader and still lose a lot, because of risky investments. Take the example of Archegos, which lost $20 billion in a few days.What happened there was a classic case of mismanaging risk and over-leveraging. It may be an extreme example of what can happen but it illustrates that even with billions of dollars in capital, you cannot avoid losing money on trading
To counter this mistake, you need to learn how risk works, trade with small amounts, and scale up as your mental resilience to pressure grows and your ability to control the situation sharpens.
- You don’t need to get all the pipsGreed is a very influential force when it comes to trading. Some traders feel like if they leave the trade open just a little longer, they can squeeze out every drop of profit. You need to learn the rhythms of the market and what its potential for movement throughout the day may be to avoid losing money on trading.That way, you can assess the best time to close a trade. If you try to grab every penny you can get, the chances of losing money increase. You should always be looking for the next opportunity and now concentrating too much on gaining everything.
5 Tips that Will Help you be in the 10%
To succeed in the financial markets as a day trader, one needs to have some qualities that make it easier to trade without losing too much money.
- Education and online communitiesWhen someone asks: why do most day traders lose money? The answer is usually: they were not ready to trade and took no steps to rectify that.
With the world as interconnected, as it is now, the last thing you should have trouble getting is information. We offer it, we recommend it and we ensure that traders who come across our material get the emphasis we place on it.The financial markets have allowed traders to come together and share the analyses that they come up with.
Learning with others enhances your chance of getting it right. Without the proper education, there is no chance of you making it to the big leagues in trading.
- Trade like it is a real businessAfter all, you are investing money into it and are looking forward to getting returns on that. To be successful, you must treat this as a business and not as a part-time hobby. If approached as a hobby, you will most likely have no reason or motivation to learn more.It can start to get frustrating if you do not take it seriously, since good results only come about when people can come up with a plan that works, treat the investment like a business and work at it to make sure that it pays off and there is a return on investment.
Trading comes with expenses, losses, taxes, stress, uncertainty, and risks. All these qualify it to be a business with the potential to earn you returns if you put in the work.
- Go in with a strategyAs you learn how to trade the markets, you will find that strategies are everything. They can make or break a trader and constitute a business plan. Without a strategy, it is impossible to make returns and you will most certainly lose money on stock trading if you start without a plan.There is a lot of money management to be done for everything you buy and with today’s technology, it becomes easier to cross check and find out if your information will work. This is what we call backtesting.
Using historical data, you can come up with a trading idea that works consistently. The more time you spend in the markets trading, the more you refine your idea/strategy; to make it yield returns more consistency.
- Technology must be your friendYour phone, PC, or tablet is your friend when trading. Good software is important and communication is paramount. If you use technology well, you can stay ahead of the curve, learn faster, gain information quicker, and stay ahead of the news and movements.With software, you can chart the trends and use a variety of ways to understand how the markets behave under different conditions, to avoid making expensive mistakes.
The technology we normally use for things like streaming and connecting with people can be repurposed to gain knowledge, meet other traders, access free lessons online to teach you how to trade stocks, and more. When looking at how many stock traders lose money, it becomes clear that they did not use tech to their advantage.
- Be careful with your capitalSaving enough money to fund an account and start trading is not easy especially since stocks have higher capital requirements than forex or futures. You do not need an expert to tell you that you do not want to go through that gruelling process twice.So, how do you protect your capital?
First, start by ensuring that you never entrust it to anyone you cannot verify. We are talking about brokers and other platforms that try to get newbies to invest money in things they should not.
Risk management plays a big role in capital management and should be your priority, to ensure that your capital can serve you well and for longer.
The long and short of it
We think it needs repeating that 90% of day traders lose money and that statistic can be terrifying to a newbie.
Trading is difficult unless a person invests time and money into learning about the stocks, understanding how to trade, and using strategies that minimize risks, and prioritize analysis-based decisions.
With training and education, a person can enter the upper echelons of traders and be a part of the 10% that does it right.
To lose money on stock trading means that a person did not invest enough time to train. As with anything, knowing your material is important. Your analysis, which guides your strategy, is important in ensuring that you can generate consistent profits.
Ready to start your day trading education journey? Begin with our free introductory course by filling out the form below.