Every day, legions of traders worldwide step into the market, fueled by dreams of success and financial independence. Every day, most of them fail. The grim statistic that hovers over the trading world like a relentless host of vultures is simple yet harrowing: about 90% of retail traders lose money. It’s a discouraging reality as it’s a zero-sum game. Naturally, I was often asked, “what are they doing wrong?” In my decades of experience in the financial industry, the reasons for this chronic underperformance have seldom strayed from a trifecta of pitfalls.
These pitfalls include a lack of proper education and understanding of the markets, insufficient risk management strategies, and the psychological challenges that come with trading. Many enter the trading arena with a superficial understanding of how markets work, driven more by emotion than by strategy. They often fail to apply rigorous risk management techniques, exposing themselves to undue levels of market volatility without a safety net. Moreover, the psychological toll of trading — dealing with loss, the pressures of decision-making under uncertainty, and the discipline required to follow a trading plan — proves overwhelming for many.
Neglecting the ‘Old Money’
The biggest mistake new traders make? Skipping out on finding a mentor. Think of trading as a craft where wisdom is handed down from the pros to the rookies. But with all the tech and real-time data today, many newbies think they’ve got it all figured out on their own, missing out on the real gold — learning from someone who’s been there, done that. Successful traders? Nearly all of them had someone showing them the ropes. However, it doesn’t mean getting a mentor guarantees instant success, but it sure does cut down on trial and error.
There are loads of ways to get a mentor. You can sign up for a trading course, join trading communities, learn the tools and technologies, or even team up with a seasoned trader one-on-one. Thanks to the internet, trading wisdom is more accessible than ever. There’s a whole world of resources and communities out there offering insights and guidance. Ignoring that, thinking you know best from the get-go, is like shooting yourself in the foot.
The AI Revolution in Trading
The rise of trading bots powered by AI is changing the game in trading, but not always for the better, especially if we go by how beginners are handling them. There’s a big myth out there that these AI bots are like magic money machines. But here’s the kicker: AI can actually make trading more confusing instead of easier.
A lot of traders get caught up in the hype of ‘predictive analytics’ and ‘machine learning algorithms,’ thinking AI already knows everything. But the reality is that AI is only as smart as the strategy behind it. It’s not a magic wand for trading success; it’s supposed to boost what you’ve already got. If your trading strategy has loopholes, hooking it up to AI will just make things go south faster. The real deal is still on the trader to beef up AI’s smarts with solid experience or at least a really good education in the field.
The Laws of Profitable Trading
Let’s break it down simply. There are some golden rules that can really tip the scales in a trader’s favor. Think of them not as stuffy laws or old-school advice but more like the secret sauce to staying ahead in the trading game. They’re all about making sure you last long and make a profit.
Firstly, don’t get too comfortable easily. The market doesn’t care about your feelings or your confidence. It’s cold and brutal, and they won’t think twice about knocking down the overconfident, the underprepared, or just the plain unlucky. To stay on top, you’ve got to be smart about managing risks. You have to keep in mind that every trade is a balance—it’s not just about what you might gain but also what you could lose, especially considering your whole portfolio.
Most importantly, never stop learning. The market’s always moving, always changing, driven by politics, the economy, and what’s happening around the world. If you think you know it all, you’re in for a rude awakening. Staying profitable means staying curious and always being ready to learn more.
The thing about trading is that a lot of folks jump in thinking they’ll outsmart the market, only to get tripped up by the very traps they’ve been warned about from the start. Here’s my advice to anyone looking to get into trading: take it easy and recognize the journey. There’s no shame in being part of the 90% who don’t make it big on their first try. In fact, there’s a lot to learn from that experience for a better second shot. However, making the same mistakes over and over and expecting different results? That’s where the real problem lies.
You can’t always avoid losses in trading, but you can always learn how to win. More than just making trades, you’re also building a career, mastering an art that takes years of commitment and an openness to learn from feedback and experiences. Trading isn’t a battle between you and the market. Trading is an opportunity for those who are disciplined and well-informed.
You’re not doomed to be a loser in trading, and the market isn’t out to get you. The only things standing in your way are neglect and ignorance. Overcome them with good mentorship, strengthen your approach with disciplined strategies, and embrace the laws of prosperity. Don’t try to beat the market; strive to understand it. That’s where you’ll find your path to victory.
Dan Rawitch is a Grit Daily Leadership Network contributor and the founder of University of Options.
