Why do most of the retail traders (~90%) lose money? And how they can be more successful? (2024)

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Why do most of the retail traders (~90%) lose money? And how they can be more successful? ›

In conclusion, retail trading is challenging and risky, requiring much preparation, discipline, and skill. Most retail traders lose money because they do not have a clear and consistent trading plan and a proper risk-reward ratio.

Most new traders lose because they can't control the actions their emotions cause them to make. Another common mistake that traders make is a lack of risk management. Trading involves risk, and it's essential to have a plan in place for how you will manage that risk.

Lack of Effective Risk Management

In-Depth Insight: Inadequate risk management is a critical factor in retail trader losses. It involves setting stop-loss orders, determining position sizes, and managing overall portfolio risk.

Lack of trading discipline

This is the primary reason for intraday trading losses in the intraday trading app. Trading discipline has to focus on three things. Firstly, there must be a trading book to guide your daily trading. Secondly, you must always trade with a stop loss only.

Lack Of Discipline

However, many new traders enter the market with a casual mindset, often influenced by the stories of quick riches. This lack of discipline leads to impulsive decisions and poor trading plans that fail to analyse the market thoroughly.

Without a trading plan, retail traders are more likely to trade randomly, inconsistently, and irrationally. Another reason why retail traders lose money is that they do not have an asymmetrical risk-reward ratio.

The most common reason for failure in trading is the lack of discipline. Most traders trade without a proper strategic approach to the market. Successful trading depends on three practices.

It is widely accepted across the investment fraternity that the vast majority of retail traders lose money - any seasoned investor will tell you this.

1. **Lack of Education:** Many traders enter the markets without a solid understanding of how trading works. A lack of education can lead to poor decision-making and financial losses. Why do traders lose more money on their losing trades than they make on their winning trades?

As much as 95 per cent of day traders lose money in the market, it demands an investigation. Intraday trading is the most popular, yet data suggests that most intraday traders lose money. A 70 percent don't last beyond the first year, and 95 percent stop trading by the third year.

What is 90% rule in trading? ›

Broker Forex Global

While it can be a lucrative venture for some, it is also known to be a high-risk activity. This is where the 90 rule in Forex comes into play. The 90 rule in Forex is a commonly cited statistic that states that 90% of Forex traders lose 90% of their money in the first 90 days.

With a $10,000 account, a good day might bring in a five percent gain, which is $500. However, day traders also need to consider fixed costs such as commissions charged by brokers. These commissions can eat into profits, and day traders need to earn enough to overcome these fees [2].

Can Retail Traders Actually Make Money? Retail traders can make money if they discipline themselves to learn a specific trading style and use risk management techniques. It isn't easy to make money consistently as a trader, but it's possible.

1. George Soros. George Soros, often referred to as the «Man Who Broke the Bank of England», is an iconic figure in the world of forex trading. His net worth, estimated at around $8 billion, reflects not only his financial success but also his enduring influence on global markets.

Studies show that the number one mistake that losing traders make is not getting the balance right between risk and reward. Many let a losing trade continue in the hope that the market will reverse and turn that loss into a profit.

Success rates among average traders are even lower, with some estimates suggesting the number of people that lose money is as high as 95%.

Understanding the Rule of 90

The Rule of 90 is a grim statistic that serves as a sobering reminder of the difficulty of trading. According to this rule, 90% of novice traders will experience significant losses within their first 90 days of trading, ultimately wiping out 90% of their initial capital.

Absence of risk rewards skills

Many traders get in on bad trades. They don't understand enough about the market and just invest in believing that the market will eventually go up.

However, the harsh reality is that the vast majority of day traders lose money. In fact, studies have shown that a staggering 97% of day traders end up in the red. This statistic is not only staggering, but it's also incredibly disheartening for those who are considering day trading as a means of making a living.

Studies have shown that more than 97% of day traders lose money over time, and less than 1% of day traders are actually profitable.