Why Do Most Traders Lose Money?

As many experts will tell you, losing money is just part and parcel to investing in stocks. It happens to most traders…but why? 

Seriously, why do most traders lose money?

Traders lose money for a multitude of reasons. From a lack of experience and understanding of how the stock market works to making the wrong investments and not saving properly. Even the fear of losing money itself can cause you to take a loss.

Losing money when trading stocks is a certainty. But it shouldn’t be a habit. In this article, you’ll learn why most traders take losses so you can try to avoid these pitfalls.

Why Do Most Traders Lose Money? Let’s Break it Down

Every trader has ups and downs. But if you’re losing money habitually — and most traders do — chances are there are some simple explanations as to why.

Luckily, just because you’ve been losing money doesn’t mean you have to keep losing it at the same rate.

There are some common bad habits that can cause traders to keep losing. Identifying these habits is the first step to changing them.

Here, I’ll talk about seven common reasons why most traders lose money and how you can work to turn things around.

Now, let’s get to my list of reasons why most traders lose money…

1. They Don’t Understand How the Stock Market Works

Why walk when you can run?

If that’s your mentality, chances are that you didn’t bother to learn how the stock market really works before you started trading.

Listen, I’m all for diving in and going for it — with a plan. It’s important to have some bravery and bravado.

But if you want to find consistency in the stock market, you’re going to have to invest some time in learning stock trading rules first.

• Take the time to learn how to trade stocks.
• Learn about penny stocks.
• Read all that you can.
• All the knowledge you absorb will make you a better trader.

2. They Don’t Save

What do you do after a successful trade? Do you go out and splurge?

That could be why you keep losing money.

You need money to make money. 

Growing an account is much harder if you keep blowing your proceeds. You won’t have more money to trade, which means you could be putting a cap on how much you could make.

Many top traders save a big portion — sometimes even the majority — of what they make.

This is because they know that by saving their money, they’ll have more to put toward the next trade.

3. They Don’t Track What’s Working

As you grow as a trader, you should notice that some things work and others don’t. But are you really taking the time to evaluate what’s working and why?

Don’t waste your time on processes and trades that aren’t serving you.

Evaluate your goals often and see what’s working to propel you in the direction of your goals.

Sometimes, it’s easier to see what’s not working than what is. But also note what’s working for you, so you can keep doing it well and refining it.

4. You Don’t Have a Mentor

What if I told you there was a single step that you could take to speed up your learning curve, diminish losses, and propel you to faster success?

Well, there is such a step, and it’s as simple as this: find a mentor.

A mentor is someone who has already been on the path that you’re just starting on.

By learning from an established trader, you can accomplish in months what could otherwise take years.

Basically, you get the advantage of their hard-earned knowledge. This can help you to avoid common mistakes and to grow faster. It can be amazingly effective.

5. They’re too Scared to Fail

New traders can be so afraid of losing money that they only pursue trades with minimal risk.

Learn this now: trading is risky. Yes, it’s scary. You might lose money.

The key is to start small to get a feel for the risk. I trade scared. 

That means I often take profits too soon. But small gains add up. I also try to cut losses quickly. It’s my #1 rule for a reason.

I don’t love risk and you don’t ever have to either, but you do have to create a better relationship with it.

6. They Don’t Learn From Mistakes

You will make mistakes as a trader. You will lose money.

But another reason why most traders lose money is that they fail to learn from their mistakes.

When you make a mistake or a trade goes bad, take time to reflect on what went wrong. It can help you avoid that error in the future and emerge stronger.

7. They’re Stuck

William S. Burroughs said, “When you stop growing, you start dying.” This is absolutely true when trading.

Maybe you’ve figured out a good system that’s working for you. But will it keep working in exactly the same way, forever?

No way. It’s important that you keep growing so that you can remain nimble and adapt as the market shifts.

The key is to never get complacent and think you’re done learning.  I urge you to continue to learn, network, and obsessively follow the market.

That can help you stay in the game longer.

Losing money every now and again is part of the process of trading. But if you notice that it’s happening over and over, it’s time to make some changes.

Making simple changes in your habits and in the way that you approach your work can go a long way toward helping you reduce your losses.

Final Thoughts

So..why do most traders lose money? As you can see there are many reasons.

With that said, coming up with a solid strategy is the first step to avoiding taking any significant losses. Once you have a strategy that works, you have to take what the market gives you.

You can’t impose your will on the market. It owes you nothing. If you’ve found some success with a strategy, it’s important to rinse and repeat and adapt when it stops working.

Some traders find a bit of success and think they have the market figured out. They take on more risk, use bigger position sizes, and go for home runs. It can result in account blow-ups pretty quickly.