saying is that 90% of traders lose 90% of their money in the first 90 days.
That’s not an encouraging statistic for someone who wants to start trading, but
there are some common reasons why most beginner traders fail and knowing them
can help you to avoid the same mistakes and increase your chances of success.
KNOWLEDGE
The first
mistake is to jump into the markets without enough knowledge. That’s like
gambling and if you don’t know what you are doing and why, then you won’t
survive for long. Just look at how many retail traders jumped into the markets
during the covid pandemic and eventually lost all the gains. There are
stories of lucky people changing their lives yeah, but they are very rare, and
the chances are the same as winning the lottery.
EDUCATION
The second
mistake is getting the wrong education from social media influencers whose
goals are just to sell courses and signals. You have to be careful when you
invest in education because “an investment in knowledge pays the best interest”
but an investment in the wrong education can be deadly.
CAPITAL
Once you
have some knowledge, you need capital. The rule of thumb is to trade only the
money you can afford to lose. DO NOT trade money you need to pay bills or to
live off of in general. If you do that, you will already set yourself up for
failure because the psychological pressure will be so high that you will easily
make all kind of emotional mistakes, from fearing of missing out to revenge
trading.
EXPERIENCE
Even if you
get the knowledge, skills and capital, the last thing you need to get is
experience. Real life experience can’t be taught, it’s something you acquire
through practice and mistakes. It’s the best teacher for anything in life. Yes,
you can learn from other people’s mistakes, but nothing can substitute your
own.
In fact,
many successful traders study the past experiences to better forecast the
future. A famous saying by Mark Twain goes like “history doesn’t repeat itself,
but it often rhymes” and that happens in the financial markets as well. The
business cycle repeats many times and the market most of the time follows the
same pattern of booms and busts.
UNREALISTIC EXPECTATIONS
The last
mistake is setting unrealistic expectations. Beginner traders think that they
can become rich quickly with trading.
Unfortunately, this is a lie that comes from social media influencers
and marketers who need to sell a dream to make money.
Just to put
things in perspective, the best traders/investors in history average around 30%
yearly returns in the long run. This includes traders like Druckenmiller and
Soros who once bet 200% of their fund on one single trade.
On the
other hand, we have social media influencers talking about things like 1% per
day or 10% per month consistently. You can see the huge discrepancy here. In
general, if you can consistently beat the S&P 500 returns over the long run,
then you are good.
FINAL WORDS
You should
approach trading/investing as a skill that will help you grow your wealth over
time, not something that will make you a millionaire overnight. It’s not a way
out of poverty or way out of your job.
Fall in
love with the process, learn every day, give yourself time to understand things,
don’t rush and enjoy the ride. Trading can teach you a lot of stuff, from
geography to history, from politics to economics. All of this will make you a
better person both in the markets and in your life.
This article was written by Giuseppe Dellamotta at www.forexlive.com.