The Top Reasons Traders Lose Money
Making money through buying and selling stocks or other liquid assets is not particularly difficult. The reason that most people never make any money is that they overlook the root cause of the problem. While most people try to find a secret that is guaranteed to make them money, they ignore the single most important part of any trading system: human psychology.
To put it simply, our own psychology is our greatest enemy when it comes to trading in the markets. We make decisions based on our emotions, which are generally the worst possible decision we can make. This leads to common losing decisions during trading. When we are in making money in a position, we want to sell to lock in profit. When we are in a losing position, we want to wait until the stock comes back. This is a strategy for losing money.
So why do most people do this?
Most traders use their emotions to trade, and trading on our emotions is using a system that does not serve us. Yes, it is a system. But it is a system that we are not even aware of. Virtually all successful traders have a system of written rules that tells them exactly what to do. They have replaced their losing system of emotions with a winning system of success.
Written rules create something that virtually no human can hope to achieve: consistency. The system will always make the same decision, when given the same inputs. Human beings don’t do this because they are subject to emotions and moods. We can make a completely different decision based upon our mood.
And, consistency is a secret to success in any area. When something is working, we want to do more of it. If a certain set of conditions makes money for us, then we want to search for those conditions, and make the same move each time. This consistent action is a recipe for success.
Most traders get lost in the technicalities of trading, exploring arcane indicators and the calculus of statistics. But success is not hidden in the rarefied knowledge of Ph.D. level mathematics. Trading success is achieved through following a consistent trading plan. For many people, it’s interesting to get lost in the details. But if we want to make money in the markets, we need to focus on the big pieces that will allow us to succeed.
Related posts:
- Do Automated Trading Systems have to be Perfect?
- The Top 7 Mistakes New Traders Make
- Automated Trading and Economic Recovery
- Are Humans Programmed To Lose Money?
- What is an Automated Trading Strategy?
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