Many traders start their trading journey with dreams of fast profits, but quickly realize that markets are unforgiving. Online financial trading is a place where traders are tested for their discipline, mental stability, emotional intelligence, and well-tested trading strategies. These qualities matter more than luck. In this guide, we will try to understand why traders fail and how to use this knowledge to avoid common traps in this sector.
Table of Contents
The illusion of easy money
This one is the most dangerous and common reason why traders fail in online trading so often. Psychology plays a crucial role here. Emotions like greed and fear often drive retail trading decisions, and we need to dissect and resolve this illusion as fast as possible. The myth of overnight success in trading is strong and is deeply rooted in the human psyche to achieve millionaire success and become financially free. This myth is constantly strengthened and advertised by fake gurus and scams. As a result, many retail traders are caught in get-rich-quick schemes where scammers often advertise a lifestyle of a millionaire trader instead of providing real-world trading lessons. Social media gurus create unrealistic expectations, and they often incentivize beginners to chase quick wins using reckless risk-taking. Unnecessary risk-taking results in losses in the majority of cases. Even if the trader is lucky in 2-3 trades, they are still going to lose money in the medium to long term, and proper risk management is critical. Markets are unfavorable to excessive risk-takers, and traders can quickly lose large sums of their accounts. Since all these issues originate from our psyche, it is a challenging task to manage them effectively. However, it is entirely possible, and many traders who mastered their trading psychology achieved fame and fortune.
Common reasons traders
To competently bust the myth of quick success and create a solid foundation for a constituent winning online financial trading strategy, we need to list and explain the main fallacies of a beginner trader. Here are the main reasons why retail beginners fail so often:
- Overleveraging – Overleveraging is when traders risk too much per trade because of high leverage. The best approach is to calculate the lot size so that you can withstand consecutive losses.
- No risk management – Lack of risk management, such as no stop-loss discipline, is the most common beginner trait, which usually results in necessary losses.
- Emotional, impulsive trading – Following emotions such as greed, fear, and revenge is the worst way of financial trading.
- Trading without a trading plan – Trading strategy is what counters all the caveats listed above, and trading without a plan is a recipe for disaster.
Entry-level hacks to become successful
So, we now have a list of errors to avoid in trading. Now it is time to list all the important entry-level hacks that will transform your trading from a loser to a winner:
- Risk management as #1 rule – Have a strict rule of not risking more than a certain percentage on each trade and always use stop-loss orders even when you close your trades manually.
- Demo trading – Start with a demo account to learn trading skills and familiarize yourself with market price action patterns. Here, you also test your trading strategies in live markets.
- Trading journal – Write down all your trading positions and details to analyze your performance later. This is crucial to trading success in the long run.
- One market at a time – Start with one market and one instrument instead of looking at several price charts. This way, you can master one market and learn what makes it move.
- Routines – Routines are crucial. Try to have a routine list of to-do things, like pre-market checks, or pre-trade checks, such as the economic calendar, major trend analysis, and so on.
- Mindset – See trading as a game of probabilities, not being right or wrong, and do not approach it as a sprint.
By having a well-defined trading strategy and controlling risk, traders protect their trading capital and ensure survival in the long run. This way, the experience will accumulate and profits will outweigh losses, but you need to survive for a sufficient time to achieve this point.
