Trading can be extremely lucrative – but it is also risky. Many traders often end up making a loss rather than a profit, especially when they first start out – and the truth is there are several reasons why that is the case.
By knowing the main reasons why many traders make a loss, you can make sure that you don’t end up in the same boat. With that in mind, here are the four main reasons that you need to know:
- Not understanding the market
Regardless of what market you’re trading in it is crucial that you understand how it works. Jumping in head first does not work in trading, and you need to take the time to study the market, figure out the factors that influence prices on it, and identify what you need to do to make a profit or loss.
- Not keeping track and analyzing the performance of your trades
Having a record of the trades that you make and how they perform will give you some hard data that you can analyze. Essentially it is what will let you learn from your mistakes, figure out what is working for you, and decide how to take advantage of it. The most successful traders in the business go through great lengths to analyze every aspect of their trades – and you should do the same.
- Not growing your capital
All too often when new traders make a profit they immediately blow it by buying something they really wanted, going on a vacation, or something else. If you want to really make money when you trade you need to grow your capital since the more capital you have to trade, the greater the profit you’ll be able to make. Having more capital is also important so that you can diversify your trading activities – and limit your losses further.
- Not knowing when to accept a loss
It may sound strange – but knowing when you accept a loss is critical. If you hang on to a position that is dropping in price, you are bleeding your capital and it is going to be exponentially harder to make it back. That is why you need to be able to know when the time is right to cut your losses, accept them, and move on to your next trade.
As you may be starting to realize, trading is certainly no walk in the park. It takes time, effort, and no small amount of perseverance to become a successful trader. That being said, the fact that you’re taking the effort to learn more about trading and what not to do is a good sign that you’re on the right track.
If you want to start trading on a flexible platform that will give you access to numerous different markets then you should try out ETX Capital. With it you can dip your toes in forex, indices, equities, commodities or other financial instruments – depending on what suits your tastes.