Every day, a lot of new and aspiring traders bring money to the markets hoping to make money. Many do not succeed. In fact, in the futures market for example, some studies show that upward of 90% of new day traders lose money! And if many do not succeed, then why do others not learn from the reasons for their lack of success? This brief article delves into five reasons beginning traders don’t succeed.
- Not Trading With Risk Capital: Capital that is not risk capital is fearful money. Traders who trade with non-risk capital are not likely to be psychologically composed. They are more likely to cut winning trades early and hold on to losing trades hoping for a reversal.
- Not Focusing on One or a Few Symbols: beginning traders want to use scanners, scan for a specific technical or fundamental formations that returns several symbols and then trade based on that. While this may work initially, the trader does not get the opportunity to get well acquainted with any specific symbol.
- Not Properly Managing Risk Within A Trade: If you are a day-trader, consider using silent stops i.e. let the stop be in your mind and dont place it to prevent being stop-run i.e. your stop being hit only for the trade to move in your desired direction – this however calls for a tremendous amount of discipline – if you cannot do this, then just place hard stops i.e. enter your stop loss order with your broker on your trading platform.
- Being Undercapitalized: I have had people tell me that they are starting to trade forex and that they are depositing $50 in a brokerage account. I tell them that $50 is too small and that it cannot even comfortably maintain a position on the forex market.
- Over-expectation from the market: Ever seen those blog posts or YouTube videos with stories of how they went from $500 to $1 million dollars in six months? You got it, that’s over expectation from the market right there. Every serious and professional trader (which we should all aspire to be) knows the markets are not for getting rich quick.
