“That can’t be so” you protest “Surely at least half succeed?” It is unfortunate but true. Around 80% of traders lose money, while only 10% make a profit.
The remaining 10% more or less break even, so the only thing they lose is their time, to which you can add their lost opportunity. Google it if you don’t believe us.
Now you have an important decision to make. Should you give up trading or aim to become a member of the elite 10% who consistently makes a profit? The decision is yours, but if you do elect to aspire to that elite band of brothers and sisters, be prepared for some hard and demanding work. If not, then that is fair enough.
Swimming against the tide
If 80% of traders lose money, then the apparent strategy must be to do the opposite of what they do. In other words, swim against the tide. The trouble is, you don’t know what they are doing. So, let’s try a different strategy.
The primary reason so many traders fail to make money comes down to their fundamental lack of knowledge about market trading. Gaining the necessary knowledge isn’t necessarily easy. It’s not rocket science either. But you do need to invest a certain amount of time in the process, especially if you are new to the field. There is no shortage of resources, online courses, and other sources of information. All you need is time and dedication.
Failing to plan
As the old saying goes, “Failing to plan is planning to fail.” Many traders don’t have a proper trading plan, and often those that do fail to stick to it. You can always check out any potential plans by seeing how they would have worked out historically. Sticking to your plan is as important as making one in the first place.
Often traders are distracted by what they see as outlying opportunities, and maybe doing so turns out well on that occasion, but if it’s outside your plan, then you could fall down a rabbit hole.
The wrong mindset
Not everybody has the right mindset to trade. That isn’t to say all successful traders have the right mindset. In fact, there isn’t the right mindset. Traders are a highly diverse group of people with a wide-ranging mix of psychologies. But some psychologies can be particularly hard to manage as a trader. For instance, greed can be a problem, causing you to take too many risks in the hope of getting rich quickly.
On the other hand, a little greed can be highly motivating. If you know you have that tendency and are in control of it, it can be to your advantage. Similarly, fear can be disastrous, or the right amount of it can prevent you from making a bad call.
Many traders are attracted to the sport by the thought that highly leveraged trades mean that they can make significant profits with only limited starting capital. A good rule of thumb is that you shouldn’t risk more than one per cent of your capital on a single trade.
And that, of course, includes the leverage. If you don’t have sufficient capital, then the chances are you will risk substantially more than one per cent of your money on a trade. So how much capital do you need? As long as you don’t risk more than you can afford to lose, not very much at all. But if you want to make it a business, then you will need sufficient capital to fund it realistically.
These are just a few of the reasons traders fail, and they are avoidable. A good trainer and mentor can go a long way to ensuring you are not one of them.