One overly used statistic you will find floating around the Internet is that 95 percent of all traders fail. Don’t worry, though: there’s specific research that suggests that this figure is accurate. When investors first get started, they often focus on big moves. They step into trading expecting to make a fortune.
If you’re just getting started with online trading, you must educate yourself about the most common reasons why people fail. Here’s a list of 13 reasons why online trading doesn’t work out for so many people:
Lack of knowledge
It’s the single biggest reason why people fail at online trading. Even though many people look for useful pointers on trading, they look in the wrong places and end up with misleading information.
Just because you buy and sell shares doesn’t make you a good trader. How do you analyze stocks when preparing to buy or sell? Most inexperienced traders say they read reports in newspapers and on websites.
They usually have very little idea of the fundamental information necessary for assessing a stock. They don’t develop a trading plan, they don’t know how to analyze a stock, and they don’t know how to manage the trade.
There is always risk involved when you invest in the stock market. However, it’s not the right approach to hastily take on higher risks believing you have adequate experience and knowledge.
When you seek out instant gratification, that’s usually when you mess things up. Ultimately, most traders lose their hard-earned savings just because they had skewed expectations.
Not sticking to a plan
It is essential to start with a trading game plan. Markets can be confusing and chaotic, especially for a trader without an action plan. Without a plan, you’ll just react to the market instead of anticipating it.
Although creating a trading plan stems from years of experience, even if you are just getting started, you need one. Once you have one in place, your job is to stick to it.
Ignoring the market trends
Experts say that acquiring necessary trading skills is relatively easy, but if you aren’t able to apply them in context, then there’s no point of having those skills. In the end, everything boils down to prevailing market conditions.
When a trader disregards what the market is telling him, he’ll end up failing. The market has rules, and when you disobey them, you risk losing everything.
Failing to study the business
You must always know what you own and why you own it. Many traders end up investing in a business without studying it. You’ll fail just like you’d fail in a poker game if you bet without looking at your cards. If you can’t explain what a company does, don’t invest in it.
Lack of discipline and patience
When traders exhibit impatience, they tend to fail. Some things take time. No matter what type of trading it is, think of long-term gains.
Setting a poor risk-to-reward ratio
Lots of traders end up with a poor risk-to-reward ratio and this mostly happens when they don’t have a trading plan to follow. Instead, they just react to the market. Having a trading plan gives you the confidence to see your analysis all the way to the end.
Trading during the first half hour
The first half hour of the session is always driven by emotions and overnight movements in the market. It’s like the market is nursing a hangover from the previous trading day.
This is, in fact, the time to analyze the market and watch out for intraday patterns and other trading breakouts. You should avoid trading during this time.
If you’re trading for the sake of trading, that means you’re overtrading. The right approach is to trade because you see genuine opportunities in the market.
Trading shouldn’t be treated like a typical 9-to-5 job. You don’t get paid for constant productivity or pushing buttons throughout the day. Instead, you make your money from a few well-timed trades.
Not having a mentor
All successful traders have a coach or a mentor that helps them formulate a strategy to be successful. Yes, the internet is full of free advice and there are plenty of books on trading but you can’t rely on nuggets of information and hope for the best.
Working with a mentor helps you pick the proven trading approaches. Your chances of failing decrease as your knowledge increases. Just like all basketball players need a coach, you need one too. A trading mentor will act as a guiding compass.
Ignoring which phase the market is in
Another common reason for failure is ignoring the phase of the market. A trader should know whether the market is in a trending phase or a trading phase.
If it’s in a trending phase, that means you can buy or sell breakouts. On the other hand, if it’s in a trading phase, you should buy weak stocks and sell strong stocks. When you don’t have a good understanding of the market’s mood, you end up using the wrong indicators and fail.
Trading for emotional highs
As a rule of thumb, don’t let your emotions get the better of you while you trade. Trading shouldn’t be treated as an adventure sport. Every trader needs a high degree of emotional balance to trade successfully. When you’re stressed out or short on sleep, avoid trading at all costs.
Blindly following the crowd
If you blindly follow your fellow traders and buy the stocks they’re buying, you are very likely to lose. Even if a stock is in the news, you must first study the fundamentals of the company, read its financial reports, and figure out why it’s trending. Only once you’re satisfied should you invest in that particular stock.
One thing that is true, however, is that people do fail at stock, forex, and CFD online trading for different reasons. or all those traders who have just begun, you’re going to make mistakes. However, if you don’t want to fail or lose your investment, try avoiding the mistakes listed above. Get in touch a reputable advisor like Bernstein Bank to reduce your risk and improve your chances of success while trading.