3 Reasons You're Losing Money in Online Trading and How to Avoid It
October 13, 2021
Losing money is a possibility that those who practice online trading must consider. It's an obvious truth for those who have been trading for a while, but for absolute beginners, for novices in the field, it can be shocking. The good news is that you can come to terms with the concept of losing money, even integrate negative outcomes into a system, into a scheme that can still lead to a positive result.
In this article, we're not talking about the happy cases where the loss is integrated into a path that is still profitable. We're talking about cases where the trader continues to lose money, and such loss is out of control. Why does it happen? How can it be avoided? We will try to answer these questions and provide some coordinates for beginners to get back on track as soon as possible, to avoid taking the definitive step towards the natural outcome of a trading approach that is always and only filled with defeats: the definitive abandonment of the market.
An alarming statistic
Before addressing the issue of losing money, it's important to put the true dimension of the problem into perspective. One statistic applies to everyone: a percentage between 65% and 90% of traders are losers. In other words, they close the calendar year with less money than they started with. Obviously, the percentage fluctuates based on the instrument used and the composition of the portfolio. It also fluctuates based on the years, since some periods are tougher than others.
The problem therefore exists, and it's evident. It's not that big, at least not in absolute terms. After all, if 75% of traders "lose," it means that 25% of traders gain. It's not a percentage to be underestimated, as many other activities are characterized by lower success rates.
The good news is that you can work on it. Even if you are a loser, there is always a glimmer of hope to transform into a winner. Or, at the very least, to embark on an evolutionary path that over time (hopefully soon) will make your trading activity profitable.
The 3 reasons why you lose money with online trading
Navigating by sight. That is, trading without a precise strategy. More than losing money, this attitude is synonymous with poor effectiveness, with the inability to earn significant sums. In the vast majority of cases, this translates into the failure of traders. Let's be clear, from time to time "it can go well," but you risk relying on luck and transforming what is in all respects a noble investment activity into a technical version of gambling.
Not using money management techniques. This is the biggest mistake among those involving traders worthy of the name, therefore with a strong awareness and a real training path, albeit beginners. Money management techniques allow you to understand how much money should be spent trade after trade in order to earn a lot when trades go well, and to lose money in a moderate and not irreversible way when trades go wrong.
Being overwhelmed by emotions. This is also a very serious mistake. Unfortunately, it is also very frequent. Trading is a risky activity that creates significant pressures. After all, the stakes are by definition high. It is not possible to suppress emotions. However, it is possible to exclude them from the decision-making process and ensure that they do not harm. The management of emotions, and therefore of psychology, is a separate chapter and must be addressed with extreme seriousness.
There is a fourth reason, which is actually the most serious and leaves little hope. It may happen that a beginner trader loses continuously because, in reality, trading is not for him. Perhaps his expectations were too high, or simply his profile is not compatible with speculative investment activity. It can happen and should not surprise. Everyone has their own inclinations, and often it is useless to force the issue.
3 ways to reduce the risk of losing money
The main advice to avoid losing money in a copious and substantially irreversible way is to develop a real vision of what online trading is: an investment activity like any other, in which it is necessary to invest skills and deploy technical and mental abilities. Therefore, a general indication consists precisely in the systematic use of a method, of a strategy.
This strategy should also include money management. We have already introduced this important discipline. We therefore invite you to delve deeper or, better yet, to embark on a precise training path aimed at developing money management techniques, or capital management if you will.
Finally, take care of the psychological aspect. A large part of failures, in trading as in life, depends precisely on the inability to manage situations from an emotional point of view. The risk, always present, is to lose clarity due to fear, anxiety, if not even panic. If you let yourself be overwhelmed by emotions, you decide badly, your action can never be effective.
The best guarantee, however, remains training. Come prepared to the appointment with the market. Study the theory, practice, acquire a general overview but specialize in a class of instruments, in a type of asset. Refer to the many types of educational material that the present makes available: manuals, ebooks, tutorials, real trading courses, webinars.
Don't neglect a tool that, although sui generis, is proving to be really useful: the demo account. It's an account that simulates the real one, and therefore the presence on the market. You operate in what seems to be the real market, but the traders (and obviously the money) are fictitious. It's an effective way to practice in complete safety, to complete your training path before investing real money and therefore actually risking losing money.
