It's likely that you've heard the statistic that 90% or more of traders lose money if you've been studying trading for some time. Only about 10% of traders regularly make money, while another 10% break even, according to this statistic.

The truth is that the majority of traders fail in the long run, even though the precise numbers may not be totally correct, and even more traders may lose money.

Lack of a distinct advantage and a weak trading strategy are typically the main causes of failure. However, psychological issues and inadequate money management are two more things that might lead to a trader's demise. I've covered a few of the reasons why retail traders typically fail below. Let's begin. 

1. Insufficient Trading Strategy

Trading is a long-term endeavor that requires careful planning. Knowing ahead of time what, when, and how you will trade is essential. Your performance may suffer if you don't have a clear plan because you'll probably be altering your approach, market, and strategy all the time. If your strategy is correct, consistency is the key to success.

Make sure to include the following in your plan before making any trades:

Which trading approach are you going to concentrate on? Are you using a new strategy, reverting to the mean, or following trends? Focusing on a single technique at a time is the best approach. When are you going to trade? Diverse market features are offered by different time periods. Following a single time period, like the daily chart, is frequently beneficial for beginners.

Which instruments are you going to trade? Stocks are where many traders begin, but it's important to know how they differ from one another. Because penny stocks have greater risks, proceed with caution.

A trading plan is necessary, but it is useless without an edge. 

2. Lack of a competitive advantage

This, in our opinion, is the primary cause of trading failure.

Having a market edge, or something that increases your chances of success after making a deal, is essential for success. Although it may seem easy, many traders are unaware that their tactics don't provide any true benefits.

Technical analysis in its most basic form rarely yields accurate forecasts. It must be improved upon and modified to fit the particular market in which you are trading. The objective is to separate successful tactics from the noise because market moves are frequently erratic.

See our in-depth article on developing a trading plan if you want to learn how to develop a winning strategy! 

3. Lack of discipline

Discipline is a problem for even traders with a strong advantage.

Regardless of how the market is feeling at the time, trading success demands following the technique and only making the deals it suggests. Although it may be tempting to make more transactions or pass on ones that don't seem like the best ones, sticking to your plan is what gives you the most advantage.

The actual difficulty arises during a downturn. It's simple to stick to the plan while things are going well, but it can be much more difficult to maintain discipline when you're losing.

4.  Overleveraging Your Position

Let's say you have a winning approach and the self-control to carry it out flawlessly. Nothing can go wrong, can it?

Unfortunately, if your position sizes are too big, even the greatest methods might backfire. If a trader takes too much risk on each trade, they risk losing all of their money in a string of losses.

For instance, if you risk 2% on each trade, you will only experience a 20% drawdown, which is a manageable amount, even if you have a losing run of 10 trades. But if you risk 10% on each trade, you can lose the entire streak.

5. Failure to Maintain a Trading Journal

Even though it might not seem required, keeping a trading log is essential to become a profitable trader. You can learn a lot about where you need to improve by keeping track of your trades, performance, and errors.

A quality magazine ought to contain:

The trading date

Traded security

Size of position and amount of investment

Signals for entry and departure

Stop-loss logic and strategy

Total trade profit or loss.

6. Impractical Expectations

There are many self-styled gurus on the internet that guarantee huge profits. It's crucial to realize, nevertheless, that most traders are unable to consistently generate gains of hundreds or thousands of percent per year.

Due to irrational expectations, many successful traders may give up on a lucrative approach before realizing the caliber of their profits.

7.Incapacity to Manage Emotional Stress

Trading may initially appear to be a simple way to generate income, particularly when things are going well. But the mental burden might be unbearable during extended drawdowns. It's simple to behave impulsively, even when you cognitively comprehend that drawdowns are a necessary component of trading.

Typical errors made during these periods include:

avoiding trades that your strategy recommends because you're afraid of losing money.

attempting to offset losses by making transactions outside of your strategy.

allowing losing trades to continue in the hopes that the market will turn around.

closing profitable trades too soon in order to lock in gains.

Maintaining a journal and following your plan are the greatest ways to stay focused during drawdowns. 

The Greatest Strategy to Prevent Losing as a Trader

After talking about the primary causes of traders' failures, let's examine how to prevent becoming one. The following tactics can significantly improve your odds of success:

Enroll in a Trading Course

Learning from others is one of the finest strategies to prevent failure. You can prevent frequent mistakes and save time by enrolling in a good trading course. However, when picking a course, exercise caution. Before joining, make sure you've done extensive research because many frauds promise instant profits. 

Avoid day trading.

Day trading is one of the hardest forms of trading to become efficient at, despite its quick pace and potential for large rewards. Conversely, swing trading takes a lot less time and provides a more controllable strategy.

Work hard!

Perseverance and hard work are the keys to trading success. The more work you put it, the more gratifying it will be; it's not a get-rich-quick endeavor.

In conclusion

The primary causes of trading failures have been examined in this article, along with advice on how to increase your chances of success. As you strive to become a more effective trader, keep these ideas in mind.