Dear All,
More than 95% of People who trade loose money .........let see why this happens
1. Lack of Experience
Trading - like any new initiative - has a learning curve. However, unlike learning a new skill such as learning to play guitar for instance, you are not risking your entire savings while discovering the difference between a major and minor chord. Learning about the markets basic trading principles solely on a trial and error basis is not a recommended approach for gaining the skills necessary to be a successful trader.
2. Unreasonable Expectations
First off, stop believing all the “get-rich quick” hype still perpetrated by some trading gurus. Yes, there are those that do get rich trading but some people also get rich selling houses. In either case, it does not happen overnight and it might take years to gain the experience and insight to turn trading into a full-time, successful occupation.
3. Absence of a Sound Trading Plan
Next to having unreasonable expectations with regards to the risks associated with trading and the amount of time required to be successful, a common mistake made by new traders is the lack of a trading plan. In reality, there are two aspects to this plan; an overall objective for your trading activities and a plan for each trade you make.
Your overall objective should include the currencies that you intend to deal in, the amount of leverage you will use, and the amount of time you intend to devote to your trading activities. Your plan must also include a realistic rate of return you expect to achieve. In addition to your overall objectives plan, you also need an exit strategy plan for each trade you make that includes the upper and lower boundaries of the trade.
In other words, you must identify the level at which you will close positions and take your profits (take-profit order) or in the case of a losing trade, the level at which you are prepared to go before you get out of the trade thus limiting your losses (limit order).
4. Lack of Discipline
A plan is only of value if you actually have the patience and the discipline to follow it. While this can be difficult, it is necessary if you expect to be successful, and it is this very reason why developing a plan prior to the trade is so fundamental. As rates fluctuate, you can easily get caught up in the market and it is only human nature that you will begin to second-guess your actions. If, for instance, the rate moves up surpassing your original take profit point, you may be tempted to hold out for an even higher return; alternatively, if the price drops below your limit level but you believe there is a big rebound just around the corner, you may be tempted to keep the order open on the hopes of a reversal.
But does either scenario really make sense? If before you entered the trade you had a sound reason for establishing both your take profit and your loss limit levels, how likely is it that conditions have changed so much that now you are prepared to throw your previous assessments out the window in the heat of the battle? Can you be sure that you are not acting on emotion rather than sound analysis?
This is why a plan is so important – it allows you to avoid the emotion that is bound to arise during time of volatility.
Now this is not to say that a trading plan can never be revised – in fact, your overall objectives should be re-examined every few months or even more frequently if required. As well, it may be necessary sometimes to abandon a plan mid-trade if market conditions warrant but this should be the exception and not the norm.
And yes, sometimes the market can be so volatile that no amount of planning will produce positive results. In this case, maybe the best option is simply not to trade until you can get a better handle on things. Never allow yourself to fall into the “I have to do something” trap – sometimes the best plan is to do nothing.
5. Failure to Include Stop-Loss and Take Profit Instructions
When you place a market order andl eave it open that is, enter a trade at the market price without instructions to close the order – you are in effect, gambling with the total value of your account. For this reason, you should consider adding stop-loss instructions to all open positions.
For instance, if you are holding a long Nifty position, you can include a stop-loss instruction that automatically sells your long position if the rate falls to a certain level. In this way, you can limit the amount that you could lose on any given trade – even if you are unable to constantly monitor your account.
Take-profit orders are similar in that they allow you to establish the rate at which you want open positions closed in order to lock-in profits. Again, you simply need to identify the rate at which to take the profits, and the trading system closes the position without further intervention on your part.
6. Excessive Leverage
Depending on your experience level, trade leverage can be a powerful tool to help you maximize returns, or it can be the cause of your downfall. It is not something to be taken lightly and if you do not understand how it works, don’t trade until you do understand.
7. Holding Too Many Open Trades
Fighter pilots call it “helmet fire” and it happens when too much is happening around you too quickly for you to react. In the cockpit of a jet fighter, it can get you killed – as a trader, you may not end up dead but you will probably end up broke.
8. Holding Losing Positions Too Long
One of the things that really separates seasoned trader from professional , those just starting out is their ability to determine when a losing trade is not going to reverse the trend. Rather than “hold and hope”, disciplined traders will take the loss and get out much more quickly.
This is another reason to set protective stops on all your trades; if you include effective stops when you submit a new trade, you can at least limit your losses without having to spend too much time “babysitting” the order. If the trade hits the stop, you will lose the amount committed but you also protect the bulk of your capital, leaving you with funds to move into something else that, hopefully, will be more profitable.
Sometimes, you just have to treat these things as life lessons – learn and move on.
9. Greed
This one is pretty straight-forward – greed; or more correctly, how greed can cause you to enter into ridiculous trades. This must be the same gene that causes some people to keep “doubling-down” even when the odds are so against them that it make no sense at all. If you want to gamble, go to Vegas.
Thanks & Regards
Abhay Mehrotra
