FASTQ - Why Do Most Traders Lose $$$$?

“Why do most traders lose money” 

-Reddit User

A reddit user recently asked the trading community, “Why do so many traders lose money?”

As is so often the case, much of the answer to the question is embedded in the question itself. It’s kinda like when your significant other asks “would you like to go to the store for me or no?” It’s delivered in the form of a question… but the answer is definitely embedded.

It is true however that a lot of traders lose money in the markets... Assuming you define “trader” very, very loosely. There are lots of reasons why but many of the reasons for those losses are just flat out excuses. Like so...
  • "The markets are rigged"
  • "My broker is crooked"
  • "Commissions killed my account"
You get the point…

In this post, I want to take a look at several actual reasons that folks lose money in the market… and 1 good way to fix that.

Here are some very real reasons that people purporting to trade lose money:

  • They’re not really traders - So many folks want to call themselves traders, but what they really want (or maybe need to do) is invest. To me, traders are looking for capital gains whereas investors make money from the internal operations of a company via dividends or maybe interest payments.
  • No plan/strategy - these folks take random seriously… perhaps too seriously. Instead of learning, developing or buying a good trading strategy, they take a haphazard approach… and get confused when it doesn’t work out as they had hoped.
  • No stop - This is a big one… If you want to trade, you must accept that you will have losing trades… If you trade and you haven’t experienced a loser, you’re on borrowed time. [Side note: If you don't know what I mean by stop, you'd be well served to close any positions you have open in the market until you get yourself some more learning].
  • Hobbyist - These folks don’t take it seriously… until they lose their account. That’s why so many traders have experienced at least 1 catastrophic loss.
  • Asking the market for too much - this is about asking the market to deliver unreasonable profits into your account… just because. Instead of 100 basis points per day on average, many day traders want 1,000 basis points… regularly. While that’s certainly achievable, the associated risk is often more than most folks can take… Unless you do it my way. 
  • Looking for excitement - One of the biggest complaints I hear from day traders in training is that they thought it would be more exciting. That usually tells me they’re not long for this game.
  • Over trading - The answer those looking for excitement usually find is to increase their level of activity. Or they increase their trade size. Or, in the worst case, both.
  • Under trading - For every trading strategy, there is an optimal number of trades that will allow the strategy’s advantage to show itself. If you’re taking significantly fewer trades than that, you’re under trading.
These are just a few of the many reasons that most traders lose money in the markets, but you get the point. These reasons are clearly very real. They’re also avoidable.

The points are essentially individual and collective mental impediments traders face. As such, they fall completely within the confines of a trader’s control.

I call this area Emotional Capital™ and I spend a large proportion of my time on it… Others call it it Trading Psychology, but whatever you call it, it truly is the Holy Grail of trading.

There’s another enormous (and related) reason that most traders lose money… they have no idea what they’re doing. This too is an Emotional Capital™ issue and it alone is responsible for a large percentage of market losses for folks. These folks have invested neither the time, the attention, nor the money (tuition) to develop as a trader and yet they wade into waters filled with folks like me and expect to succeed.

Ain’t gonna happen.

If you want to trade professionally or as a side hustle even, commit yourself to the task and learn how to do it properly.

Your results will be much more to your liking… And it’s the only way you’ll ever be able to say, “Most traders lose money… but not me.”

Now get going on that store run.

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