September 21, 2021

Info IEC

Business & Finance Information

Why do novice stock traders lose money?

Stock trading is all about precision. To make a regular profit in the stock market, a trader must have strong analytical skills and deal with the critical market dynamics with a high level of precision. Sadly, rookies start their trading careers without having any basic knowledge. They execute random trades in the stock market and blow up the account. But there are many several reasons for which people are losing money in the stock market. If you go through this article, you will learn about the most common mistakes and thus you can become more cautious during the trading process.

In this article, we will highlight some of the key factors for which rookies are losing money in the retail trading industry. Go through this article as it will change your life within a short time.

Trading the penny stocks

Being a new trader, you should not trade penny stocks. In general, the price movements in penny stocks are extremely volatile, and becomes nearly impossible for retail traders to find the key direction of the trend. Even if you manage to find the direction of the trend, you have to deal with false spikes and sudden reversal in the trend. On the contrary, if you start taking the trades in the major stocks, you are no longer going to face such trouble. You can easily execute the trades and make a consistent profit without having many issues.

Ignoring the trend

The professional stock traders always take the trades with the trend. They know trend trading strategy is by far the most effective way to make money in the retail trading industry. If you want to change your life, we strongly recommend that you learn to ride the trend. Read more about the trend trading strategy at Saxo and improve your skills. Try to understand the different phases of the trend from the start. It will help you to avoid taking the trades during the retracement phases. But never think the major stocks will never change their trend. Once in a while, the market might change its trend without giving any early signals. So, be prepared to have some losing trades.

Using the chart pattern in the lower time frame

The rookies often take the trades in the stock market by using the chart patterns. But they analyze the chart pattern in the lower time frame and thus they lose a significant portion of their capital. Chart pattern trading strategies require a higher time frame trading approach. Unless you take the trade in a higher time frame, you are never going to learn the key art of trading. Take your time and learn to evaluate the market data strategically.

Forget about the lower time frame trade signals and develop a higher time frame trading technique. Once you become good at the higher time frame trading method, you should be able to make a consistent profit.

Advanced risk management technique

The novice traders never follow proper risk management techniques. They are taking random trades and expecting to make a big profit. But if you do some in-depth research on the professional trader’s action, you will notice all of them are taking the trades with low-risk exposure. They never expose themselves to aggressive trading methods as they know it can cost them their capital.

In each trade, you should never risk more than 2% of your account balance. Some of you might think that taking a 3% risk in the trades is perfectly fine. But if you follow such an approach, you should not open more than 2 trades in a row.

Trade with confidence

Lack of confidence can cause big trouble in your trading profession. You should have strong faith in your trading method and look for reliable trade signals in a very systematic way. It might take a while to build up the confidence but you do have the options to trade in the demo account. Unless you become extremely skilled with your strategy, keep on practicing.