8 Easy Ways to Blow Up Your Account

 

Almost everyone has read the statistic that 90% of active traders are not profitable and eventually quit trading. While I don’t have the exact numbers, I suspect that a lot of those traders blow their entire trading account before they quit. Even many legendary traders like Dan Zanger, Nicolas Darvas, and Alexander Elder lost a lot of money before they were millionaires. A new trader is like a 16 year old with a car; you know that eventually mistakes will be made, and you just hope that the mistakes are not too dangerous, or that they don’t cause any long term discomfort.

During the first year, the new trader needs to focus on learning and not trading. Why would you trade before you know what you are doing? When a new trader begins to trade, they should start small to avoid letting their decisions become influenced by emotion. When the trader gets up to speed, the focus should be on what can be lost more than what can be made. The new trader must learn what they should be looking for before launching directly into trading. Their focus should be on methodology, entries, exits, risk management, and a well researched trading plan.

Of course there is also a quick and easy way to just blow up a trading account. I do not recommend these paths to destruction.

  1. A losing trade? No Problem just keep adding to it until it comes back. It will eventually come back, right?
  2. The bigger the better; if you are right, you can make a lot of money, as long as you are never wrong.
  3. Short bull markets and go long in bear markets. You can pick all the right reversals, right?
  4. You are smarter than the market. You are so special you can predict the future. Trade your predictions, they have an edge, right?
  5. Be stubborn with losing trades. The losses can’t get too big, can they?
  6. Cut winning trades short while the profits are there. Can big losses and small wins lead to profitability?
  7. Follow someone else in their trades, not knowing their position size or stop losses. What could go wrong? 
  8. Spend a ton of money on snake oil salesmen that promise you the Holy Grail of trading. I wonder why these can’t lose money machines are so affordable?