Click here to get a PDF of this post

Trading is one of the few professional fields where anyone can go against professionals very quickly and easily by simply opening a trading account. 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 10% of profitable traders feed off the mistakes of the other 90% of unprofitable traders. Unexperienced traders do things that put the odds of success against them and cause them to lose money. Here are ten things that can cause unprofitable trading and even lead to blowing out an account if not corrected.

  1. New traders keep an opinion even after the market has proven them wrong, day after day. This causes small losses to grow into bigger losses when they get on the wrong side of a trend.
  2. New traders add to a losing trade making it bigger and bigger hoping for a reversal to get the trader back to even. Big trades are the biggest causes of unprofitable trading, all losses should be small losses.
  3. They trade a very big position size because they are 100% sure that the trade will work. Any trade can be a losing trade so the trade size has to be kept consistent and small.
  4. They take a trade that they do not fully understand, not understanding  bid/ask spreads, volatility, liquidity, time decay, implied volatility collapse, leverage, margin, etc. can lead to big losses. Trades that are not fully understood almost always ends badly.
  5. Losing traders are bears in a bull markets shorting and selling new all time highs short.
  6. Losing traders are bulls in a bear markets buying breakouts to the downside and trying to catch falling knives.
  7. The unprofitable trader instead of taking their initial stop loss when wrong about a trade convert their trading plan to hold and hope for a snap back to even.
  8. They buy far out of the money front month options with terrible odds of making money.
  9. They risk a large amount of money trying to make a small amount of money.
  10. They trade first before they have done the proper homework on what leads to success. They are in a hurry to trade instead of focused on their plan and method.

“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.