10 Ways Traders Lose Money In This Market

Making money in trading is a function of the market matching our methodology and approach to the market. But at the same time, traders need to be focused and consistent, as there are several ways traders lose money.

We trade with a philosophy and we profit when it syncs up with the current market environment. We make money when our winning percentage is strong and our losses are minimal, or when or wins are big and are losses are small.

If we have the discipline to follow a system consistently and manage our risk by it, then the profits will come when the market aligns with our method. Until then it is our job to keep our losses and drawdowns under control.

In short, there will be periods where everything is working great. And periods where trades are getting stopped out and lost quickly. It is our job during the latter periods to make sure that the losses are minimal (and that we understand the ways traders lose money). This is a tough task, considering all the different types of traders and approaches. Let’s review some examples.

Here are 10 ways traders lose money in the markets.

1.  Day traders have trouble making money in markets that lack intra-day volatility.

2.  Trend followers can’t make money when markets don’t trend in one direction for any length of time.

3.  Momentum traders lose money when stocks fail to breakout over resistance and trend.

4.  Traders that use chart patterns don’t make money when trend line breaks don’t lead to sustained trends.

5.  Swing traders don’t make money when support levels fail and stop losses are hit before a reversal.

6.  Dip buyers don’t make money when downtrends begin and lows get lower.

7.  Option trades lose money when markets fail to trend before the option expires.

8.  Option sellers lose money when parabolic moves put the sold options in the money.

9.  Investors lose money in bear markets.

10.  Perma-bears lose money in bull markets.

There are several ways traders lose money in the market. Successful traders ensure that those losses are small.  Thanks for reading.

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Twitter: @SJosephBurns

Read more from Steve on his blog NewTraderU.

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.