4 Reasons Why Most Traders Fail, And How You Can Avoid Them
Crypto futures trading is widely regarded as a potentially lucrative but high-risk form of trading. In fact, the total volume of the crypto futures market has surpassed a staggering $500 billion mark point. However, it’s unfortunate that many traders, particularly those new to the crypto market, tend to lose money and struggle to earn consistent profits over the long term. There are a few fundamental reasons why new traders tend to struggle in the futures market, and we’ll explore some of them in this article.
Poor Risk Management
Effective risk and money management are crucial for success in the volatile Forex market. Even the smallest market fluctuations can result in significant losses, which is why it’s important to protect your investment. This can be achieved through various risk mitigation strategies, such as implementing stop-loss orders to limit potential losses.
It’s also important to exercise caution when exposing your funds. A general rule of thumb is to never risk more than 5% of your total portfolio in a single trade. Unfortunately, many new traders make the mistake of risking too much of their investment, sometimes up to 50% or more, which is an extremely risky and an unwise approach. On the other hand, experienced and successful traders know to never risk more than 1% to 5% of their total investment, ensuring that their losses are minimized and their profits are maximized.
Poor or No Trading Plan
The primary cause of trading failure is often greed, as new traders seek quick riches without proper planning or adherence to the “plan your trade and trade your plan” rule. These traders commonly panic, closing trades for small profits or large losses.
To avoid such pitfalls, traders must have a comprehensive plan in place, including how much they’re willing to lose and how to handle adverse scenarios. To create a robust trading plan, traders must consider various factors, such as the type of order they will use, technical indicators they will use, the time frame they will trade, and how they will manage their watch list. Technical analysis is an essential part of trading, and traders must decide which indicators and tools they will use to identify trends and reversals. Writing down your plan will help you formalize your approach and make informed decisions based on logic rather than emotions and hunches.
Over-Leveraging
Leverage is the ability to trade with larger position sizes than your account size. For example, if you have a $10,000 account, trading without leverage means you’ll be trading a lot size that is equivalent to your account size, which would be a mini lot of 0.10.
However, many traders misuse leverage, which can lead to disastrous results. The promise of quick riches can be enticing, but it’s important to remember that leverage can be dangerous, and it’s one of the most significant mistakes a trader can make. It’s readily available and can be pushed by unscrupulous marketers. Essentially it can quickly destroy a trader’s account.
Successful traders know to use leverage wisely and never to overextend themselves beyond their means or strategy. Novice traders, in particular, must focus on preserving their capital and aim for small and consistent wins, as these will add up over time.
Not Trading Responsibly
LBank promotes responsible trading behavior among its users, urging them to avoid emotional decision-making that could lead to unnecessary losses. Novice traders are especially vulnerable to relying on “gut feelings” due to their lack of experience. To prevent impulsive trading decisions, Lbank recommends the following in compliance with local financial regulations:
Invest only in assets you understand after researching their history and tendencies.
Diversify your portfolio by investing in assets across various classes.
Becoming a better trader
Becoming a successful futures trader is comparable to pursuing a career as an engineer, doctor, or lawyer. It requires dedication, hard work, and an unrelenting desire to improve, and it often takes years of practice to master the craft. Like any profession, the learning process for trading is a journey filled with challenges, but with persistence and determination, one can achieve success.
Thankfully, one of the advantages of trading is that there is a wealth of knowledge available from experienced traders. By learning from others’ experiences, traders can shorten their learning curve and avoid making common mistakes. It’s also important to learn from your own mistakes and experiences. Every trade presents an opportunity to learn and improve, and successful traders are those who take the time to reflect on their actions and refine their strategies accordingly.
Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.
