Why Over 90% of Retail Traders Lose Money

Updated: Sep 9, 2021

Have you ever heard of the 90-90-90 rule?

This rule states that 90% of traders lose 90% of their money in the first 90 days of trading. I am not exactly certain whether this is true, but what I am sure of is that more traders lose money way faster than this and end up blowing up their entire account in the process.

In today's blog, I am going to talk about the reasons why traders lose money. Afterwards, I will give some practical tips on how to avoid it so that you can be part of the roughly 10% that makes money with financial trading.

Trading is like any other business. You need a plan, a good strategy, a patient mindset and consistent execution to succeed!

There are 4 things that you need to really become a successful trader. If you're missing one of these then "Houston, we have a problem."

A Tested Strategy

The first thing you need, not necessarily in order of importance, is a good and tested strategy.

Some traders, come to the market without a trading strategy. Some even mentioned their strategy is to copy what other people are trading. That is a sure-fire recipe for disaster. Some people would basically go online, ask someone what the flavor of the day is, then get a response that a mentor or someone who is a veteran trader, or the director of a hedge funds is trading this, or perhaps they base their trade on what they've read in the news. More often than not, you'd end up with less money in your trading account, yet wiser that you've learned that this doesn't work.

A trading strategy consists of a set of rules that tells the trader what to trade, when to trade and when to exit. A strategy doesn't have to be complicated. Oftentimes, the simplest of strategies turn out to be the best.

Remember that I mentioned about having a good and tested strategy. There are tons of strategies available everywhere. Part of becoming a profitable trader is to personally test the strategy using historical price data (back testing) or a demo account (forward-testing). Determine the win rate, drawdown rate, potential gain on account and most wins or losses in a row. After this, it doesn't stop there. You have to continue tweaking your strategy until you get the best possible results. This will give you confidence to trust in the strategy instead of second-guessing all the time. Never jump into live trading with real money. You'd end up regretting this decision.

Trade with the Right Tools

The second piece that you need as a trader is you need to have the right tools. This is vital.

If you want to survive in the financial markets, you need to have professional tools. You can't just come into the markets half-assed and trade on your mobile phone. In 12 years of trading, I've never met a successful mobile phone trader ever. To put it simply, you can't win in a Formula 1 Grand Prix by racing on a donkey. I hope you get the idea.

Invest in analysis platforms, subscribe to squawk services, or purchase a good trading journal. Invest in a good Personal Computer System. If you are thinking of trading one type of asset then one screen is enough. If you decide to trade more like forex, commodities, and crypto then, you obviously need more screens. All these will help you in your trading journey.

Many traders these days rely on trading robots or what many people refer to as EAs. If you're tech savvy and you've managed to create your own EA which means you know absolutely how to tweak it based on current markets conditions then go right ahead. But, if you are just purchasing a trading bot from a website or from a friend's referral simply because the EA company claims it has a high win rate and will surely get you the profit you dreamed of, then keep dreaming. EAs or robots are account churners. It may give you a couple of wins, but believe me when I tell you, it will burn your account faster than 90 days. The only people who would benefit from this is the person who or company who sold you the EA robot in the first place. Don't even get me started with signals. Forget it. Pick a strategy, test it for at least 3-6 months, tweak it, then use it. Moreover, if you already know your strategy gives a good result, then trust it!

Trader Mindset

The third and most important aspect to become a successful trader is having the correct mindset.

You can have the best strategy and the best tools, but if you don't have the right trading mindset, you will LOSE MONEY.

I see this all the time, every day, in trading group chats. Sometimes, people think that all they need is the right tool, or an expensive trading robot and they will be successful. If this was the case then everybody would get rich trading the markets and there wouldn't be any losers. Unfortunately, financial trading is not that simple.

The main reason why most traders fail is because they let emotions get the best of them. The two main emotions that we have as traders are greed and fear. We are greedy because we want to make money and this is why we got into this game in the first place. Then there's fear. The fear of losing money. We are so attached to money that the thought of losing it paralyzes us to the point of making stupid decisions.

When you get into financial trading, remember that you should only trade with money you are willing to lose. So, the second you put your money in your account, accept that it's already lost. That's how simple I think. This allowed me to be fearless in the markets and it has helped a great deal in my success as a trader. Many traders, unfortunately can't get over this fear because they are trading with money that means if they lose, they can't be able to afford a certain aspect of their lifestyle for a while.

Greedy traders also run into the danger of overtrading. Newbies are notoriously greedy and impatient. They are in and out of trades. It just wouldn't work in the long run if you don't have a clue what you are doing.

Then there is revenge trading. Revenge trading is something that traders do when they lose a trade. Trying to earn back the money you lost with this emotion is another disaster waiting to happen. Remember, the market does not in any way owe you. Sometimes, the market gives, and sometimes it takes away. Consider your losses as a business expense.

Newbies focus a lot on the entry but never pay attention to risk management and the exits. I heard so many newbie traders say that they've got the market figured out. I've been trading for many years and I still haven't figured it out. Overconfidence will eventually kill your account.

Peer pressure. If you feel pressured in making profits because you see other traders making a profit, then your mind is in the wrong place. Most people who post those gains of 20% to 30% or even 1000% per month are probably trading on a demo account. Perhaps they even work with a broker who pays them a commission just to make you trade more. As a professional trader, making 3-5% gains in your account per month is already great! If you've started out with a $5,000 account, at 5% per month and considering compounding interest, you will very well be enjoying $1,500,000 in 10 years if you are consistent. Think carefully, before believing in other people and what they post for you to see. There is always a hidden agenda.

Get a Mentor

Finally, one the most important but given the least attention is finding yourself a good trading mentor.

In our world today where we believe everything can be accessible to us online, through Youtube, Facebook, or Reddit, it is easy to get lost and take in a lot of information. Unfortunately, most of the information is either partly correct, or not at all consistent to what they claim.

You might think that you could just wing it yourself by watching tons of Youtube videos on how to trade. I've met some traders who learned this way, and they are pretty much still where they are right now. There is a difference between a mentor who trades a $10,000 or $50,000 account and a mentor who has a portfolio worth $1,500,000 and over. Honestly, who would you rather learn from?

An experienced mentor is important so that you can avoid the major pitfalls and lessen the blow that most traders experience in the markets. A mentor has in his arsenal tested strategies, the right trading psychology and the right tools to use for whatever market specialization he may have. So, the next time you get a chance to learn from a mentor, do not pass on this one. It will eventually save you the money, tons of heartaches and sleepless nights.

The article does not constitute financial advice. Trading has risks involved. Only trade with money that you are willing to lose.

Hive FX Trading Academy offers financial trading mentorship programs delivered entirely online live. This is an exclusive one-to-one mentorship program for Forex, Stocks, Cryptocurrency, Indices and Commodities trading.

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