Top 10 Causes of Big Trading Losses

The top 10 causes of big losses in trading:

  1. 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.
  2. 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.
  3. Too much hope for a reversal: You think the market just can’t keep moving against you and must reverse at current price levels.
  4. 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.
  5. Buying in a downtrend: Bulls in bear markets lose money as markets make lower highs and lower lows.
  6. Selling short in an uptrend: Bears in bull markets lose money as the market makes higher highs and higher lows.
  7. No trading plan: When you don’t have a plan for your trades you plan to fail.
  8. 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.
  9. Bad position sizing parameters: Big losses will occur when position sizing is not based on historical volatility and worst case scenarios.
  10. 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.