Currency analyst

Why people lose money while trading

In this article we suggest that you take a few minutes and ponder why you are losing money trading in financial markets (if you lose, off course; we do hope that the most of the time you win). Here are some most common reasons why this happens.

1. Too emotional

People trading in financial markets are exposed to constant stress and emotional pressure.

Once they were exulting over the scads of money they managed to pry out of their counterparts, then, in a matter of time, they lose everything they’ve earned and even more than they expected. No wonder, many feeble and emotionally weak people cease trading even before starting to earn money. They’ve become emotionally overwhelmed with their misfortunes and break down mentally.

The most successful traders, though, are those who have ice water running in their veins. They know exactly how to overcome their emotions no matter what bad or good things are swirling around them. All these emotions create a lack of objectivity that clouds people’s mind and therefore gives false trading ideas. So, if you feel that you still are not able to control your feelings, you’d better learn how to do so.

2. Greed

This selfish and excessive craving for money is perhaps the worst enemy of traders. The greed causes investors to hold their winning positions too long aspiring to get as much money as possible. This strategy may lead to the bad consequences for the trader, because he/she risks of getting blown out of their positions. We admit that greed is not easy to overcome, because it’s one of the basic character flaws of every human being. But we do believe that every person can control it. So, don’t be Mr. Scrooge, be a rational risk-averse person.

3. Lack of understanding

You must be aware of the fact that intellectual knowledge is trivial to profitably trade forex. The more you know about the characteristics of the market you’re interested in, the more profit you can make of it. Frankly speaking, it is the easiest of the main problems to solve. Knowledge can be acquired in many ways: reading books, reading news, attending seminars, attending classes, finding a mentor/couch/adviser, swapping information with other members of trade society.

4. No trading plan

Trading plan is a necessity for traders. It will allow you to outline a scenario of the expectations for the future and earn more than you could simply relying on your gut feeling, instincts or intraday market analysis. In addition, a properly created trading plan may help you to identify the exact entry and exit points to financial markets, to examine your weakness and keep the record of your mistakes (I hope you don’t want to get the same bumps and bruises). The use of a trading plan is also a viable way of reducing mental fatigue and anxiety. Moreover, traders who have committed money based on a rational trading plan, not only paved the way for their future success, but also relieved themselves from excessive stress and anxiety (make a long story short, they become more confident and fearless trading in financial markets).

Well, I would not say that this list is exhaustive; there are many other mistakes that traders make all the time. The main purpose of this article is not to point out what exactly you did wrong, but rather to motivate you to look at your trading techniques with critical eye. Once you do so, you will see how well it can affect your “earning powers”.  

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