Why Do Traders Make Losses?

This is a question that most traders ask themselves and different people have different answers to it. The most important things to know, before this question is answered are the following –

• The market does not function to benefit one particular person. It is not there to make you happy. Similarly, it is also not there to get people and dupe them of all their money. The market is neutral.
• Losses are a part of trading and everyone has faced them at some point or the other.
• The market is not affected by news or factor beyond it. It is affected when people react to such news, not by the said factor itself. Basically, when people find out some tidbit or rumor about the market, they sell or buy accordingly and that causes market fluctuations. So, the fluctuations are a direct result of trader’s reaction.

The following points will help you understand why people with the same information, charts and leverage make different profits (and sometimes losses) –

1. Mentality Of a Trader – When you have had returns from the market, you tend to get optimistic or at least, you avoid being negative about the market. You know about some basic things on the functioning of the market and are willing to believe that profits can be made. On the other hand, someone who has not made any profits from the options trading or the forex market and is struggling to break even would look at the market from a different view point. This attitude is the reason that some traders make losses and others don’t.

 

2. Effects Of Negative Thoughts – If your mentality towards the market is negative, you tend to be fearful for every little decision you have taken. Most people make mistakes when they are afraid of the market, like –

 

• Most amateur traders take their profits in too soon because they are afraid of losing whatever little they have managed to make.
• At other times, they do the exact opposite. They close too late and end up losing a lot.
• Some traders enter into trades that they should not enter into because of lack of practicality. They enter into these unattractive trades because they fear that they would be missing out on a huge opportunity if they don’t.
• Some traders tend to play with the stops and targets which can be disastrous when your trade is still in play. It creates chaos and also, it signals indecisiveness.

There are many ways to deal with your losses but most of them point at one thing – stop being afraid of the market. When you are in a tight situation and are confused as to what to do, try to imagine what a professional would do in the same situations. Then, imitate their results and you will find that the market is kind to you, at least as kind as it is for everyone else. Be confident and trust your decisions instead of being uncertain and changing them.

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Tags: Business, Commodities and Futures, Foreign exchange market, Forex, Investing, Option (finance), Trader (finance)

Category: Investing