subject: Top 6 Reasons Why Traders Lose Money [print this page] Top 6 Reasons Why Traders Lose Money
Futures trading can be very profitable, however futures trading without a plan or a disciplined approach can lead to a rapid loss of equity in your account. The are a million reasons why people lose money futures trading and many have to do with your inner self and how well you can stick to your plan. I have listed here a few of the top reasons why people lose money in futures trading. This is by no means an exhaustive list, but I think it covers the main categories for why traders lose money.
1. Over futures trading is a big no-no. Be selective and only take trade setup that fit with your system. Futures traders tend to have no discipline, no plan, and no patience. They over-trade and don't wait for the right opportunity. Instead, they seem compelled to trade every small setup without looking at the big picture.
2. Little to no futures trading plan. You must have a money management plan, rules for getting in and out of trades, a time frame (day trade, swing trade, etc.) you wish to trade, etc. Most traders do not define specific risk and profit objectives before trading. Even if they establish a plan, they "second guess" it and don't stick to it, particularly if the trade is a loss. Consequently, they over-trade and use their equity to the limit.
3. Lack of discipline to follow your futures trading plan. A good plan is only good if you follow it. Many people trade with their hearts instead of their heads. For some traders, adversity (or success) distorts judgment. That's why they should have a plan first, and stick to it.
4. Not accepting or limiting losses in futures trading. Many traders have the habit of not cutting losses fast and getting out of winners too soon. It sounds simple, but it takes discipline to trade correctly. This is hard whether you're losing or winning.
5. Lack of commitment. Part of good futures trading is to keep a detailed trading log, do research on technical setups, etc. Most traders do not spend enough time and effort analyzing the market, and/or analyzing their own emotional make-up. Most traders over-trade without doing enough research. They take too many positions with too little information.
6. Failure to control your emotions such as greed, fear, etc. when futures trading. Greed causes some traders to allow profits to dwindle into losses while hoping for larger profits. This is really lack of discipline. Many traders fail to get into the market when there is a perfect setup because they are scared of losing money. They say to themselves "I got burnt before and now I am going to wait for the PERFECT setup". The perfect setup never happens and they sit on the sidelines watching the marketing taking off.
Think about these areas in your futures trading and write down areas where you think you need improvements. Then write out a game plan for making these changes and a time line to get them done.
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