Anyone who starts to trade eventually loses money and asks themselves why? There are many reasons why trades may end with losses. Thus, we can point out the primary factors that affect trading experience: internal and external. Internal factors include but are not limited to the experience and knowledge of a trader as well as his emotional condition. In other words, those things that a trader can control.
On the other hand, external factors are beyond the trader’s control. For example, market state, crowd sentiment, and significant events in the world. In this post, we will review all of these factors and understand how they affect the losses.
Let’s start with internal factors
Every trader can control and work on them. These factors depend on you, and it is your responsibility (as a trader) to reduce their influence on your trading strategy:
– Emotions. Crowd sentiment and trader psychology play important roles. If you make trading decisions under the influence of negative emotions and feel angry or stressed out, sooner or later, you will see the negative outcome. However, keep in mind that it is also bad if you make trading decisions while you are extremely happy or excited. Your attention is dulled, which may result in more damage.
– Illiteracy. Many traders do not educate themselves and continue trading, hoping for fast and big profits. Some traders start to seek advice from financial advisors on scam websites without their own research. It is pretty naive to wait for advice from others. Rely only on yourself, not on luck. Trade without practice. Obviously, if you treat trading as a game, you will end in losses. At least check the best and worst trading hours and the currency pairs that perform well or bad during this time. Remember that rational decisions can only be based on knowledge!
– Trading without risk management. The absence of risk management is the next reason for losses. Traders do not allocate capital and do not set up limits for themselves. I.e., how much you can invest, win, or lose each day.
– Big expectations. Some traders expect that they get rich very fast. They rush into trading and open trades without proper analysis. Don’t do this. On IronTrade, we always warn our traders to read and analyze first. Trading is about learning, not about deserving. Utopian demands will only create trouble, so stay humble, learn, and practice. It is better.
What are external factors?
Fortunately or not, not everything in trading depends on a trader. You can find the best strategy, which works for you, but does not work for somebody else (or at other times, or with other assets, or at any other conditions).
The market significantly depends on the crowd. Do you remember the situation when some asset constantly rising? That’s it. It means that more and more people buying it. When more people purchase some asset, the price rises. However, the rising can not happen continuously. At some point, people start to feel fear of losing and start to sell it in a panic, thinking that the price will go down. The more people sell the asset, the faster it drops in price.
It is a very simple explanation, but it demonstrates crowd sentiment and how crowd psychology affects the market. It does not depend on one trader, and you can not influence it. Just try to think critically and do not panic while others do.
To sum it up
If you want to gain, you need to stay confident. Confidence comes from knowledge. So, keep learning, investigate the asset you are trading with and do proper risk management. It helps to keep your emotions under control. Of course, it is sad when you lose, and recovering may be painful, but losing is a part of trading. No trader can avoid it. Just learn how to deal with your losses and what do you make of that? As usual, IronTrade wishes you all the best. Take care and good luck!