After more than a decade in trading, I've encountered all kinds of traders, some of whom have made profits, while others have been consistently losing money. I've realized that to be profitable, one must achieve many factors simultaneously, such as strong execution, emotional stability, clear rules, and strict money management, almost demanding perfection from us as traders. However, losing money only requires one reason; if there's just one aspect not done well, it's easy to fall into a losing state.
This is why making a profit in trading is difficult, and the market follows the 80/20 principle, where 20% of people take away 80% of the money. Therefore, losing money is the norm in trading, and we should not feel as if we are the only ones losing while everyone else is in a state of success. In reality, most people are losing, and only a very small minority are making profits.
What are the main reasons for our losses?
1. Trading blindly and ignoring risks.
A friend of mine, who had been tormented by the stock market and lost his temper, came to me recently wanting to try forex because it allows trading in 0.01 lots, has high leverage, and requires less capital. So, he wanted to give it a try.
I advised him not to go live right away but to practice with a demo account first.
After practicing for a while, he became very excited because the forex market, with its T+0 and dual-direction trading rules, is much more flexible than the stock market. There are no breaks or openings, and the trading hours are very long every day.
He was trading the US dollar against the Japanese yen, and the market had been bullish. He kept going long, and even when his positions were stuck, he didn't cut his losses. He just added more, and he could turn a profit.
He excitedly told me that he had found a trading method and was ready to go live.I told him that there are many kinds of trends, and the market movements he is seeing now are still too few. He should not blindly enter the market without a trading plan, as the risks are too high. However, it is very difficult to dissuade someone when they are excited, so I stopped him and let him only put in $1,000 for a live account.
Later, when the US dollar had a deep and large space correction against the Japanese yen from around 160, it blew up his account. He said: "Brother Ba, I'm so grateful for listening to you and only putting in $1,000. If I had put in more, it would have been disastrous."
In fact, this is a common problem among many traders. They do not have a deep understanding of the trend, and without comprehensive observation, they directly dive into the market, taking their own perception as the whole picture of the market, and end up being slapped by the market.
Underestimating the difficulty of trading, overestimating one's own trading abilities, and blindly ignoring the risks of trading are the main reasons why most people lose money.
In "The Art of War - Waging War," there is a saying: "Therefore, those who do not fully understand the dangers of employing troops cannot fully understand the advantages of employing troops." Not understanding the dangers of using troops will lead to underestimating the enemy and also prevent a true understanding of the benefits of using troops. We must always maintain sufficient attention and vigilance towards the enemy in order to achieve victory in battle.
2. Do not think, do not learn, do not progress.
Thinking and learning are very mentally exhausting activities, so most people tend to avoid thinking, which is a form of mental laziness.
For example, there was an older fellow who came to me for a chat, saying that he had been trading for more than a decade and still had not succeeded.I asked him what the reason for his losses was, and he pondered for a long time, saying that his mindset was not good, and he always failed to execute properly.
I asked him why his mindset was not good. He said, "Why else? This thing called mindset is inexplicable."
It's normal for beginners who have just started trading to not understand why they are losing, because they haven't been beaten up enough. However, it's not acceptable for veterans who have been trading for years without ever properly analyzing the reasons for their losses. If you can't find the reasons for the losses, you will definitely not be able to improve, and you will just keep spinning in the circle of losses.
When I used to suffer losses, my thought process was as follows:
I first asked myself, why did I lose? Was it because of inadequate skills? A poor mindset? Or was it a problem with money management?
Then I started with the technical aspect, reviewing my past trading records, looking for the reasons for each loss, writing down all the reasons for the losses, and then searching for solutions online one by one, along with reading books to learn skills, establishing a systematic trading mindset, and then slowly getting back on track with trading.
After my skills were on track, I found that many mental issues were solved by half, and the remaining half was due to my original personality issues, which could only be achieved through deliberate training. As for how to train the mindset specifically, I think this is quite personalized. I learned to jog to train my impatient nature, to reduce my position size to stabilize my emotions, and to deliberately do some counter-emotional things to temper my character. There is a book called "Deliberate Practice" that you can read.
Later on, I found that many so-called technical issues or mental issues, the root cause is actually inadequate money management. For example, if the position size exceeds your risk tolerance, no matter how good your skills are or how strong your mindset is, you cannot restrain the deepest greed and fear in your heart.
So I realized that these three aspects influence and constrain each other, and by analyzing and thinking a little bit, and learning and changing a little bit, things will be resolved. Progress is always from quantitative change to qualitative change, not suddenly enlightening, and suddenly starting to make a profit. You will find that there are many moments of enlightenment in trading, all of which are continuously growing through trading experiences, provided that you have the initiative to think and learn.
3. Poor emotional control ability.I believe everyone has suffered from emotional losses, whether in trading or in life. People with stable emotions are in the minority.
I used to be someone who found it very difficult to control my emotions in life, easily losing my temper and being impatient in my actions. This characteristic was magnified infinitely in trading.
I often made several mistakes in a single day, losing a lot of money. At that time, I was anxious and eager to break even. Once emotions took over, I would disregard everything, opening positions at any opportunity, thinking that after being wrong so many times, I must be right at least once, right? It couldn't be that unlucky, could it?
However, the market was quite enigmatic, continuing to be wrong over and over again. Sometimes, by the end of the day, my emotions would be completely shattered, and as a grown man, I would cry uncontrollably.
Sometimes when the market would retrace, I would be terrified, always fearing that another retracement would lead to more losses. The shadow of previous losses still loomed, so I would always close my positions before a significant trend, missing out on substantial profits.
In trading, these recurring emotional swings always tormented me—fear, greed, anxiety, anger, arrogance, or the vengeful trading under despair, the adventurous spirit under the excitement of profit—all seemed like demonic claws tearing at me, and these were all reasons for my losses.
Later, when I was truly desperate, I made up my mind to change. I reduced my positions, started learning, and deliberately practiced my emotional control abilities, which led to gradual improvement.
Having experienced the ups and downs of trading, you will find that nothing in life is unchangeable—values, personality, habits, temper, they have all been reshuffled, it just depends on whether you have the courage and determination to do so.
But still, a word of caution: such a change, although transformative, also involves unbearable pain. If you have been consistently unable to make a profit and your emotional issues remain unresolved, it might be better to withdraw from trading and return to your own life. Any profession can make money when mastered; perhaps it's just not suitable for you.
