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The top 10 causes of big losses in trading:
- Too stubborn to exit when proven wrong: You just refuse to take a loss, you think a loss is not real as long as you do not exit a trade.
- Too much ego to take a loss: You are on the wrong side of the market trend but think if you hold a losing position you can be proven right on a reversal. While you are waiting to be proven right your loss gets bigger and bigger.
- Too much hope for a reversal: You think the market just can’t keep moving against you and must reverse at current price levels.
- Trading too big a position size: The bigger you trade the bigger your potential loss and the more likely that your emotions will override your trading plan.
- Buying in a downtrend: Bulls in bear markets lose money as markets make lower highs and lower lows.
- Selling short in an uptrend: Bears in bull markets lose money as the market makes higher highs and higher lows.
- No trading plan: When you don’t have a plan for your trades you plan to fail.
- No trading system: If you do not have a quantified and proven price action trading system then your trades are just random in nature. Big losses will happen due to the random nature of entries and exits.
- Bad position sizing parameters: Big losses will occur when position sizing is not based on historical volatility and worst case scenarios.
- No discipline: No self control to create a systematic trading process and even if there is one, then no discipline to follow a predetermined method.