There is a surprising number of traders that lose money given the fact that so much information is available for those that want to learn how to do this in a proper way. The experienced investors like Gregory Lindae already know how most traders lose money. This is the type of information you need to gather. With this in mind, here are the really common ways in which traders lose money. Avoid them at all costs.
Trading With The Goal To Learn
Most of the traders that had to deal with losses acknowledged the fact that they started trading without actually getting appropriate training coming from professionals. If you just know basic market information, you end up investing and trade hoping in a completely ignorant way, mainly relying on luck.
A much better approach is to actually learn how to trade before a trade is made. Fortunately, nowadays you can actually use software to do this as it tends to offer demo accounts to test your skills before committing the capital. As a beginner, you need to focus on information gathering.
Lack Of Or Improper Risk Management
Every single trade has an associated risk level and a risk category. If you want to avoid losing money, you need to conduct proper risk assessment of investment opportunities. Trader can thus easily determine held leverage against investment. Also, he/she can figure out of it is actually worth to use leverage. If risk assessment is not in place, traders end up placing wagers on portfolios with high-risk premiums. Leverage losses are thus very common, together with other possible losses.
Improper Money Management
You only have a limited amount of money that you can use for investment purposes. If you do not have money management skills, you end up holding on for way too long or stocks are released too fast. Even if you make a profit from a specific transaction, in the long run you might lose money simply because you did not properly manage your budget.
Not Understanding Transaction Costs
Just like absolutely all investments out there, trading does have specific operational costs. You should factor these into the equation when you generate profit and loss statements. Traders often end up losing money even if the return is positive for a specific trading period. This is because of the costs that appeared during that specific period. Adjusted transaction costs that are deducted include commissions, taxes and even utility bills.
Lack Of Discipline
Last but not least, many traders are now losing money as they lack trading strategies. If they do have one, they end up deviating from the initial plan. As a simple example, traders that do not have diversified investment portfolios often end up losing money due to risk spreading lack. Always be sure that you trade only when you have a set limit. As the limit is hit, the appropriate tasks have to be taken or you will end up losing money. Discipline is simply vital for every single aspiring investor out there.