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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?’
Trading 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 market
Pitting 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.
If 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 management
Risk 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 tradingTo 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 pips
Greed 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.