Why Do Most Traders Lose Money?

By | February 7, 2023 3:51 pm

Trading is high risk game. Trading is a lot more about how you manage your risks and stick to your trading discipline.  90% of the traders are losing money in trading.

The fact is that most traders, regardless of how intelligent and knowledgeable they may be about the markets, lose money. Are the markets really so enigmatic that few can profit or are there a series of common mistakes that befall many traders as discussed below 

An trader must stick to a proper plan. A full-fledged intraday plan includes profit targets, factors to consider, methods to put a stop loss, and ways to select the right trading hours. The trading plan provides a comprehensive overview of how trading should be executed. Also, you can keep a record of trades executed during the day with the performance analysis of each stock at the end of the day. Such records help you identify the weak areas in your trading strategy and correct them. It is very important to be disciplined as a trader, the proper discipline will help you minimize the losses and maintain your capital.


Trading Against The Trend

Sometimes it pays off for long-term investors to trade against the trend as they have more time to assess the market and predict an emerging trend. But for traders, the best bet is to trade along with the market momentum.If you’d like to succeed in day trading, gradually master the art to read the charts to time the market. In Current Adani Saga Most of traders were Long when Adani was Hitting LC now when trend reverse most of traders will be Short.


Hitting The Panic Button

Traders have very little time to react to the market.  So, many of them often hit the panic button too early when the market is choppy. It is a common trait, especially with new traders. Remember, when you panic and sell, you compromise your profit potential, which benefits traders who don’t panic. Day trading requires a certain amount of courage and risk appetite to digest market volatility.The key is to observe the market and not to panic when the market is volatile.

Not understanding the trade structure well enough

What do we understand by trade structure? The success of the trade depends on a variety of factors. You need to understand the history of the stock, its price trajectory, news and corporate announcements and the supports and resistances of the stock. When all these things are put together, you get the structure of the stock. The reason you need to limit yourself to a handful of stocks for trading is that you need a thorough understanding of the structure of the trade.

Ignoring the trading plan

The trading plan captures the broad outlines of how the trades need to be conceived and executed. This includes how to put stop loss, profit targets, what factors to consider, how to select the right trading hours, maximum acceptable loss etc. In fact, the trading plan is the constitution for your trading activity and you need to adhere to it strictly.


Focusing on being right rather than on making money

There is a subtle difference being right and being in the money. Let us start with a rhetorical question. What is the difference between an analyst who predicted the Nifty direction 9 out of 10 times right as against another analyst who predicted only 6 out of 10 times right? The answer is that there is no difference because both did not make money on the trade. The focus of the trader must be on making money on the trade and not whether the bottom and top of the market was caught. The intraday trader needs to be crystal clear that the core focus is to make money.


The good news is that the problem, while it can be emotionally and psychologically challenging, can be solved by using solid risk management techniques.

One of the Key aspects of risk management.

  1. Risk a little to make a lot – use at least a 1:2 risk to reward ratio

Most traders lose money simply because they do not understand or adhere to good money management practices.

Part of money management is essentially determining your risk before placing a trade. Without a sense of money management, many traders hold on to losing positions far too long, but take profits on winning positions prematurely. The result is a seemingly paradoxical scenario that in reality is all too common: the trader ends up having more winning trades than losing trades, but still loses money 

To resolve this paradox, establish your risk and reward parameters ahead of time. Insist on taking trades that offer at least a 1:2 risk to reward ratio. You can be right only 50% of the time when using a 1:2 risk to reward ratio to give yourself a shot at consistent returns.

Category: Trading Loss Trading Psychology

About Bramesh

Bramesh Bhandari has been actively trading the Indian Stock Markets since over 15+ Years. His primary strategies are his interpretations and applications of Gann And Astro Methodologies developed over the past decade.

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