How to Lose Money Trading

As the majority here are trying to make money spread betting, and, are either not able to do so, or are making very little, or, are actually losing money, I am going to start a discussion so that traders can learn How To Lose Money Trading. Now, we will start by looking at what normally happens, and that is, according to all the experts, most traders can expect to lose a good bit of money before they start to make it. So, maybe if we show you how to lose money, instead of how to make money, it may be more fitting.

  • Trading success means being consistently profitable no matter how small the profits may be. At the end of the week the day traders' account is healthier than it was at the start of it. At the end of the month, the swing traders' account is healthier than it was at the start of it, etc...
  • Trading failure means being consistently loss making, i.e. the reverse of the above. The day trader is down over the week and the swing trader is down over the month etc, etc...

From my own experience I would say that the quickest way to lose money is to take notice of what online mentors have to say. They really do not know much more than you/us. And do avoid learning to read candles, this would be quite likely to lead to you winning more and losing less.

The second best way is to try and run before you can walk. I am thinking of people lucky enough to have some sizeable savings who want to get in at big money per point, rather than learning with pennies per point over several months.

The third best way to lose money is to be impatient. Try wanting to get there far too quickly. Try rushing into trades without thought, in combination with all of the above. Try wanting to be 'in' all the time. And certainly, you should feel that you are doing something wrong, or at least, are not game, for not being in all the time. It is also a great help after a few weeks in your desire to lose money, to start taking yourself seriously as a trader, and to become a little bolder.

Try also not to dwell on the following, the avoidance of a loss is just as profitable as a win, as far as your account goes.

Try also the avoidance of stop losses, after all, you wouldn't want to get caught up in a spike would you.

Try also winning a few big pay outs, this should set you up for a huge pay in.

But let's try to find out why so few succeed? Trading in a disciplined manor is not easy when one has to cope with the frustration of often seemingly random events, that the paranoid trader may feel are conspiring against them

This includes things such as - you try shorting a breakout, it does not happen, your Stop is hit. You try to short the same breakout again, the breakout does not happen and your stop is hit again. The third time you decide not to trade the breakout - and the result is that if you had have traded it this time, you would have made profit.

Furthermore, if you had held onto either of the first two losing trades, without taking a stop-loss, they would have come back into profit when the eventual third breakout materialised. This is frustrating, as it seems like random pot luck determines if you placed your trade/s at the right or wrong moment, and to a large extent I think it is random Pot Luck - when it comes to what works and what doesn't work.

The trader can decide to trade the breakout every time their trade entry criteria is met, taking each and every stop-loss along the way, or they can stand aside after a few failed attempts, in order to avoid possible further losses, only to watch if and when the eventual breakout materialises.

The trader could also see that the breakout is occurring, enter the trade too late, and see the trade reverse against them resulting in another failed trade.

This type of negative experience and frustration can also lead to fear of failure. Therefore the trader may pass up on other types of good trade opportunities, only to see them move into profit - as they had foreseen, but were too scared to trade. They may then hastily try to enter at a following entry opportunity that is not as good as the last, this trade fails. They may now be thinking, I should be +20 pips in profit now, but instead I'm -10-pips!!! = more frustration.

Therefore the frustrated, indisciplined and potentially doomed trader may put up with such frustrations for so long before deciding, no, I'm not accepting that my stop-loss has been hit this time, I'm going to hold onto the trade, and it should come back into profit just like the others. The trader may get away with these indisciplined trade managements decisions (which they may only resort to on a few rare few instances) for so long. However, somewhere down the line the trader will find that price moves further and further away from the stop-loss that they didn't take - and now wish they had took it - leading to them being deeper in the red, unable to trade due to this losing trade hanging over them. At some point they may have to add more funds to their account following a margin call in order to keep this doomed trade alive, or they accept a big loss on that one trade. and they only have a small fraction of the capital left that they had previously.

Some people, I count myself among them, flit from one system to another. This is in part may be because of the failure to accept any losses at all, and/or a general fascination with the markets as a game. Another reason for failure is expectations. It has been said of army generals that they are fully prepared to fight the last war! I wonder how many newbies tweak their settings to win the last few trades. Only to find the revised settings fail on the next set of trades.

I believe traders who set themselves a daily target, or a modest target are more successful. For example, if the market moves 120 pips, many newbies wonder what they need to do to maximise their settings to get 120 pips, and may feel cheated if they got anything less. When, the more mature traders, may be satisfied with a system that gets them 50 of those 120, knowing that in the long run, they have a more stable equity curve, based on a more robust system. The need to get all the pips is part of greed, and of the feeling of missing out.

This is basically a case of trying to run before you can walk. I have spent several years learning French. I understand it very well now, but still struggle with my fluency - being able to bring the correct and advanced vocabulary to mind quickly whilst in conversation.

Language learning has similarities to learning to trade, which illustrates the progress of lack or progress towards success. It's easy to grasp some of the basics - the 'bonjours' and the 'une biere svp'. They can serve you well in straight-forward and limited situations, just as using simple techniques such as MA cross-over may serve for a time. However when you have been arrested in the middle of a riot in Paris you need a more extensive vocabulary!

Most people want to become fluent quickly, in fact more than that - immediately. They are not content with the 50 pips, but want the 120.

They struggle for a while but soon come to the realization how much dedicated work it takes. They then give up.

Those who continue at it, realize that they should let go of the idea of immediate fluency and instead, work at listening, adding a few extra words each day and practicing.

One day, eventually, they realize that they are now fluent and, despite all the hard work, it seems now as if it happened without even trying...

Why do most people lose?
  • Because most people are not particularly intelligent.
  • Because most people are lazy.
  • Because most people have a lousy attitude towards hard work.
  • Because most people are not prepared to spend 3 to 5 years working hard at it.
  • Because most people think it is an easy way to earn a fast buck.
  • Because most people are not prepared to drag themselves off the floor and start again after a particularly bad reversal.
  • Because most people gamble and do not play the probability game correctly.
  • Because most people do not know how to or even want to conquer their fears.
  • Because most people are insatiably greedy; for instance adding more money after a success, when they should be patiently accumulating.
  • Because most people really do not have a clue.
  • Because most people are not in full control of themselves.
  • Because most people do not have an edge - or ability to consistently pick good entries.
  • Poor money management - i.e. bad use of leverage.
  • Insufficient Capitalization.
  • Unrealistic Expectations.
  • Trading against the Trend.
  • Fear. Telling oneself that the market will turn after the price has fallen too far. That is a kind of hypnotism similar to that of a rabbit looking at headlights. If you have your 100 pounds capital divided into 10 pounds per trade you must remember that, if you disobey that rule, you are removing capital meant for your next trades. When I hear that "I think it will come right" expression I know that that trader is another one for the bone yard. Get rid of that attitude right away- believe me, I've been there but I was one of the ones that had my 1000 pounds divided into 100 lots at 10 per trade and have survived.
Successful traders:
  • Keep focused and be able to sort out the truly valuable information from all the dross - the background noise, some of which is intentionally designed to mislead.
  • Do not divert their attention with searches for holy grails such as multitudinous variations on indicators, all the latest fashionable theorems etc. This is another variation of (1) - they focus on the obvious, even though others may overlook it.
  • Do not follow every guru or attempt to take shortcuts by using mechanical systems, alerts or watch lists provided by others when they do not understand the mechanics upon which they are based, assuming they are based on anything at all. This is another variation of (2).
  • Will put in the hard work to analyze the market and create their own systems.
  • Will not let their emotions get in the way of trading, but will stick to their pre-defined plan giving clear entry, exit and money management strategies.
  • Will not be arrogant and therefore narrow-minded. Their minds will be open to new ways of thinking and adaptable as the market changes.
  • Will understand the forces that drive the market - seen and under seen, psychological and manipulative. They will understand which events are causally related, which ones do not have direct causal relationship and which are hiding under the guise of random events.
  • I listened to one of the most respected traders in the city speak the other week and one very interesting thing he said was when he is hiring traders the thing he looks for is are they the sort of person that you could punch in the face and they would just sit there are carry on with the interview and not question why. That's quite extreme and a bit of funny thought but it sums up how the best traders can switch off their emotions. This is what 90% of people can't do. It will be said that the same, old, stuff is being trundled out but I don't believe there is anything else that is so important as the Cold, Calm and Collected attitude to trading. Dominate emotions and you will become a survivor. The trading 'edge' will come with practice.

The content of this site is copyright 2016 Financial Spread Betting Ltd. Please contact us if you wish to reproduce any of it.