“What do I need to become a successful trader? – part 2” is an article in which we’ll talk about the most important reasons why traders fail. In case you missed the previous one you can read it here.
Why do traders fail?
As an old talk states: “Only a fool learns from his own mistakes. The wise man learns from the mistakes of others.”, here are some important reasons why traders fail:
- Trading without a trading plan;
- Trading without a trading method;
- Trading without good and verified rules (based on knowledge and backtest);
- Trading without a good money management;
- Trading without a good risk management;
- Trading without a stop loss. This is the main reason for turning a small loss into a large one;
- Trading without a good discipline, necessary to become a successful trader.
Superficial learning – traders watch few videos from the internet and then jump straight to a real account without understanding the basics of the movement of financial markets. This is one of the biggest mistake which a lot of traders do, as in the beginning it may seem very simple to make money, when in reality, trading, requires the same work as in any other business;
Small accounts and “get rich overnight” wish – usually small accounts lose money, because it requires at least a good discipline, a lot of experience and a lot of patience in order to make money with a small account. Most of traders don’t know / understand that there is a reason why big funds, banks and usually big traders make only 20 – 25% per year. Of course, there’s a huge difference from 20% of a 10.000$ account and 20% of a 100.000.000$ account (just an example);
I’m not saying that you can’t turn 300$ into 3.000$ in 3 weeks, I’m saying that it’s very hard to do this and you need to be ready to wipe out few accounts until you’ll be able to do that. Moreover it’s even harder to be consistent in doing this (turning 300$ into 3.000$). Keep in mind what I said in “What do I need to become a successful trader? – Part 1”: it’s hard what you
don’t know and it’s easy what you know;
Not respecting a good trading plan – some traders fail to achieve good results because, even they worked and made a good trading plan, they fail to respect it by opening too soon a trade, exit too early from a trade, missing trades because, they feel different than what trading plan said and so on;
Pride – lot of traders are too proud to listen experts and don’t think that investing in knowledge is a good thing. Actually, investing in knowledge is one of the right things to do when you want to be good in any business, not only in trading;
Misunderstanding the risk associated with trading – Like any other business, trading, involves risk and it is very good for a trader to understand at what risk one exposes to, before start trading with real money;
Mental preparation – is one of the important things that is ignored by a lot of traders. Before start trading, a trader needs to be sure that it is in a state of mind which allows him to make good decisions. This mean that a trader should not be angry, should not drink alcohol with at least 24h before start trading, should not be under the influence of some medicinal substances
or drugs which may interfere with a clear thinking, and so on;
Random trading – this usually means that a trader see a pattern for example and choose to trade it without integrating that into a context and this kind of trading usually lead to losing and revenge trading. Random trading also means opening trades outside of trading plan and also involves emotions, which again lead to mistakes which cost money;
Not being committed in the trading process – by its nature, trading seems very easy to do, just press a button (buy/sell) and for this reason lot of traders lose focus and this is another reason to lose trades and actually real money;
Last but not least: responsibility – as I also said in: “What do I need to become a successful trader? – Part 1” a trader needs to take responsibility for his actions. One is the only one responsible for its actions and every trader should be aware of that.
In “What do I need to become a successful trader? – Part 3” I’ll talk about reasons why traders
succeed and what steps a trader should follow in order to become a successful trader.
Mihai Marginean and
Team of Elite CurrenSea