Why Investors Fail in Trading?

Why Investors Fail?

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According to research more than 92% of traders close their accounts within 9 months and never come back trading again. This essentially means one thing – trading is not a get rich quick scheme. Yet, this should not be misinterpreted to mean that it is not a profession for newbies. Even the best traders lose money in their first months in the investment industry, and they made it big because they strived to overcome the challenges and went on to learn from their mistakes. Why then do so many investors fail? Here are a number of reasons:

1.    They trade for a quick buck. While traders can easily make money in the forex market, it can easily disappear. Many traders earn quick money but very few make it big because they do not fully understand how the market works. On the other hand, there are many others who end up broke because they failed to realize that forex trading is all about an properly timed trading strategy.

2.    They don’t have a plan. In any financial market, a trading plan (or strategy) is essential. Before an investor decides to trade real money, they must set specific amounts on capital they want to invest, and how much they are prepared to lose. Unfortunately, so many new traders do not realize the importance of this or they simply couldn’t be bothered.

3.    They don’t use stop losses. Not all trades will go well, and in this case, a trader must know when they can call it quits. By setting up stop losses, traders can prevent additional risk to their account and can limit their losses to a few hundred dollars.

4.    They do not test for entry and exit points. Trading works a lot like firing a missile – you have to test it so you can minimize the casualty. Random buying and selling just wont work.

5.    They get emotional. Most traders who profit in an uptrend will tend to keep their bets on that same position hoping to get a few more dollars. Unfortunately, at a time when information can be transmitted so fast, prices can change in just a few minutes and will cause a $1,000 portfolio to drop in value without notice.

In the same way, traders who have losing positions may wish to keep trading hoping they can recover their losses, and end up losing even more. To prevent these from happening, a trader must stick to their plan – when they have reached a certain amount of profit, it is best to close the position and take home the profit. In the same way, traders will also need to stick to their stop losses.

Source: www.etoro.com