Retail traders enter financial markets for one thing: money. Who doesn’t like money, right? Unfortunately, they are sucked in by false promises and numerous scams. Most of them end up losing money and a very small percentage are successful. This is natural selection.

I want to list the main causes that I think are why retail traders lose in the long run and some things you can do to get out of this vicious cycle:

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Illusion: the first thing is that they want to get rich quick. They are bombarded with ads of a housewife making $4,000 a month comfortably trading forex from her bedroom. It is obviously a lie. First of all, you need money to make money and stories of people hitting the jackpot with lucky trades are very rare. You can buy a lottery ticket and you can have the same odds. You should know that the best traders in the world earn an average of 30% per year over the long term. How can you trust a random social media influencer earning 200% a MONTH? If you expect such high returns and inevitably cannot achieve them, you will feel pain and lose money trying to over-leverage or retaliate from trading just to get there. Reduce your expectations to realistic numbers and you will start to suffer less. Also, you shouldn’t expect to become good overnight as it takes years of experience like any other skill.

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Technical analysis: I would say that is the main reason, but some would say that you can make money using only technical analysis without considering what is happening in the real world. Jim Rogers once said, “I haven’t met a wealthy tech, except, of course, techs who sell their tech services and make a lot of money.” Technical analysis can be a good risk management tool, but hopefully no one believes that prices move because of certain lines on a chart with historical data. A chart shows you where the market is and where it has been NOT where it is going. Start using charts to manage your risk instead, for stop loss placements, entries and exits. If you think the market has gone too far, too fast, in valuing a fundamental development and you notice that the price action is stalling or printing some kind of reversal pattern, then take some profit off the table or just close your transaction. You can even cut your losers if you expect the price to break on one side due to a fundamental catalyst, but the market actually breaks out on the other side and the momentum continues. Get out. You can always come back later or you can see if something happens that invalidates your original reasons etc.

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Bad Education : As they say, “an investment in knowledge pays the best interest” and that’s true as long as the knowledge you get isn’t fake. If you want to buy books or courses on business education, that’s fine BUT do your due diligence before spending your money on something that might just be a waste of time. A bad education can lead you to failure and it is really dangerous for beginners. Before making such an investment, surf the net for reviews, ask people who have already taken the course or book you want to buy, and then draw your own conclusions. If you think it’s worth it, otherwise go your way.

This article was written by Giuseppe Dellamotta.