There are any number of explanations and reasons why traders lose. However, there is no one defining factor as to why the majority of traders come out as losers from the “game”.
The first hypothesis that comes to most people’s mind is the supposition that failure depends mainly on following a poorly developed trading system and strategy. However, this is just one of the reasons. Sometimes the importance of trading psychology is not even considered, which is actually the factor of greatest significance. Your mindset and psychology, that is your attitude towards trading, how you think and feel about the market and consequently react to it and its continuous changes are the foundation upon which real success is built.
Together with developing a good trading strategy you should know how to manage your emotions around your trading. Before thinking of trading and risking your money you need to enter the market with the right mindset.
Be a Logic-Based Trader
Trading impulsively is the number one enemy of trading. It’s typical of Forex companies to advertise indicators automated trading systems to capture traders. This is simply done to draw traders’ attention to their product and aquire them as clients of their platform. This is a common reason why traders suffer losses. They are drawn in by a ‘can’t lose’ illusion. They enter the market with certain expectations which are unrealistic. They may even consider leaving their job so that they can earn enough money by trading to realise all their ambitions. This is emotional trading; the need and greed for money closes their eyes and blocks their brain – the fastest way to lose money.
Remember that in trading logic always wins through in the end. This is because logical traders know when and how to limit their losses, using different trading order types to stop losses, whereas reacting impulsively may lead to traders giving all their profits back to the market.
Learn How to Manage Risk
Winning traders know how to manage the risk in the most effective way. They appreciate each moment in the market and expect that the market’s nature is that anything can happen at any moment. This results in conscious trading and the avoidance of excessive leverage. Most importantly they never risk the money they can’t afford to lose, a trait typical of emotional traders who eventually turn out be losers. The latter often trade with the money they should not risk, which makes it difficult to be coldly calculating about their trade and leads to emotional trading.
Manage your risk during every single moment of trading. Note, the moment you loosen control of your emotions, you lose control of your trading and the worst can occur.