4 Mistakes That Cause Traders to Lose Money

Over-Leveraging.

Over-leveraging is dangerous as it increases both potential profit and loss on a trade, thus increasing the likelihood of significant losses.

Leverage works both ways - magnifying gains and losses -

so traders should use caution when leveraging their trades. Consider your risk appetite and leverage accordingly to ensure you're not exposing yourself to high levels of risk.

Failing to Use Stop Limits

Stop Limits are essential tools for managing risk when trading. Stop limits set an amount beyond which the trader is comfortable to lose and will automatically close a position if it reaches that limit, thus preventing potential large losses from continuing to add up. Setting your stop-loss limits will go a long way towards protecting your investments in the long run.

Ignoring Market Timing

Many beginners take the approach that all trading involves equal levels of risk regardless of market timing. In reality, different types of market conditions actually entail different levels of risk which must be properly managed.

For example, trading during a bear market – when stocks have downward momentum – is much more prone to losses than trading during a bull market – when stocks are trending upward.

Being aware of the current state of the markets and how they affect potential trades will help traders minimize their risk.

Not Having an Investment Strategy

One of the most common mistakes for novice traders is not having a concrete investment strategy in place. This often results in trades that lack consistent structure, which can lead to major losses or failure over time.

To properly manage risk and increase return, it’s important to develop a trading strategy that outlines the conditions required for entry and exit from a trade.

Additionally, investors should define their risk tolerance prior to making any investments to better prepare them for serious situations when they arise.

Not Thinking Long Term

Making a killing on a single trade is appealing, but often overlooks the long-term implications of trading. Long-term investing requires traders to take into consideration opportunity costs associated with short-term churning and day-trading. While attempting to maximize short-term gains may appear successful, traders who don’t think long term risk not only missing out on higher return potential, but also increase their chances of losing money in the long run.

What percentage of traders lose money?