Trading is one of the few professional fields where anyone can go up against professionals very quickly and easily by simply opening a trading account. The barrier to entering the trading world is low and most people can get quick and easy access to trading live markets. There is no college required, no degree, or apprenticeship needed before a new trader steps up to compete in the world markets against seasoned traders and professional money managers. The profitable traders feed off the mistakes of the unprofitable traders. Doing things that put the odds against them cause them to lose money. Here are ten key things that cause losses over and over again and can lead to blowing up an account if not corrected.

  1. New traders keep an opinion even after the market has proven them wrong, day after day. A stop loss is there to keep losses small, listen to a stop loss placed in the right price level will save you money.
  2. New traders add to a losing trade making it bigger and bigger hoping for a reversal to get the trader back to even. Increasing a trade when on the wrong side of a trend is expensive.
  3. Trading a  big position size because you are 100% sure that the trade will work out is very expensive when it does not work out. The obvious trades are rarely the good trades.
  4. Taking a trade that you do not fully understand can be surprising expensive. It could be wide bid/ask spreads, volatility, liquidity, time decay, implied volatility collapse, leverage, margin, etc. Ignorant trades almost always end badly. Know your trade before you enter it.
  5. Being a bear in a new bull market is usually expensive.
  6. Being a bull at the beginning of a bear market can be expensive trying to catch falling knives.
  7. A trader starts down a dangerous road when instead of taking their initial stop loss when wrong about a trade convert their trading plan to hold and hope. In the markets emotions are expensive.
  8. Buying far out of the money front month options with terrible odds of making money usually lead to losses.
  9. Risking a large amount of money trying to make a little bit of money is almost always an unprofitable endeavor as a big loss will wipe out a lot of small gains.
  10. Trading first before you have done the proper homework on what leads to trading success will lead to paying tuition to other more skilled market participants.

“The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system.” -Ed Seykota

“If you diversify, control your risk, and go with the trend, it just has to work.” -Larry Hite.