10 Reasons Why Trading is Difficult
- It is hard not to trade too big when you really believe in a trade entry. It is even harder to take a big loss if it goes against you.
- It is hard to keep taking your entry signals during a losing streak. It is also hard to miss a signal and watch it go on to be a big winner.
- It is hard not to add to a losing trade when the price keeps looking better as it falls lower and lower. It is hard to be on the wrong side of a trend.
- It is hard to buy a breakout in trend because it looks too high. It is hard to miss out on the beginning of a big uptrend.
- It is hard to cut a loss early with the ego wanting to be right about the trade.
- It is hard to let a winning trade run when you would prefer a quick gain than a bigger long-term gain.
- It is hard to buy when everyone is fearful and hard to sell short when everyone is greedy.
- It is hard to trade through different types of markets, bull markets, bear markets, volatile, trending, and range bound because the rules keep changing.
- It is hard to convince your friends and family that there is a process to your trading and that you are not a degenerate gambler.
- It is hard to ever quit trading after you have tasted how sweet a big winning streak is and how life changing it can be.
10 Ways Traders Lose Money In This Market
Making money in trading is a function of the market matching our methodology and approach to the market. But at the same time, traders need to be focused and consistent, as there are several ways traders lose money.
We trade with a philosophy and we profit when it syncs up with the current market environment. We make money when our winning percentage is strong and our losses are minimal, or when or wins are big and are losses are small.
If we have the discipline to follow a system consistently and manage our risk by it, then the profits will come when the market aligns with our method. Until then it is our job to keep our losses and drawdowns under control.
In short, there will be periods where everything is working great. And periods where trades are getting stopped out and lost quickly. It is our job during the latter periods to make sure that the losses are minimal (and that we understand the ways traders lose money). This is a tough task, considering all the different types of traders and approaches. Let’s review some examples.
- Day traders have trouble making money in markets that lack intra-day volatility.
- Trend followers can’t make money when markets don’t trend in one direction for any length of time.
- Momentum traders lose money when stocks fail to breakout over resistance and trend.
- Traders that use chart patterns don’t make money when trend line breaks don’t lead to sustained trends.
- Swing traders don’t make money when support levels fail and stop losses are hit before a reversal.
- Dip buyers don’t make money when downtrends begin and lows get lower.
- Option trades lose money when markets fail to trend before the option expires.
- Option sellers lose money when parabolic moves put the sold options in the money.
- Investors lose money in bear markets.
- Perma-bears lose money in bull markets.
There are several ways traders lose money in the market. Successful traders ensure that those losses are small.
Thanks for reading.
Read this and more from Steve on his blog NewTraderU.
Twitter: @SJosephBurns
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