The common saying is that 90% of traders lose 90% of their money in the first 90 days. That’s not an encouraging statistic for someone who wants to start trading, but there are some common reasons why most beginner traders fail and knowing them can help you to avoid the same mistakes and increase your chances of success.
KNOWLEDGE
The first mistake is to jump into the markets without enough knowledge. That’s like gambling and if you don’t know what you are doing and why, then you won’t survive for long. Just look at how many retail traders jumped into the markets during the covid pandemic and eventually lost all the gains. There are stories of lucky people changing their lives yeah, but they are very rare, and the chances are the same as winning the lottery.
EDUCATION
The second mistake is getting the wrong education from social media influencers whose goals are just to sell courses and signals. You have to be careful when you invest in education because “an investment in knowledge pays the best interest” but an investment in the wrong education can be deadly.
CAPITAL
Once you have some knowledge, you need capital. The rule of thumb is to trade only the money you can afford to lose. DO NOT trade money you need to pay bills or to live off of in general. If you do that, you will already set yourself up for failure because the psychological pressure will be so high that you will easily make all kind of emotional mistakes, from fearing of missing out to revenge trading.
EXPERIENCE
Even if you get the knowledge, skills and capital, the last thing you need to get is experience. Real life experience can’t be taught, it’s something you acquire through practice and mistakes. It’s the best teacher for anything in life. Yes, you can learn from other people’s mistakes, but nothing can substitute your own.
In fact, many successful traders study the past experiences to better forecast the future. A famous saying by Mark Twain goes like “history doesn’t repeat itself, but it often rhymes” and that happens in the financial markets as well. The business cycle repeats many times and the market most of the time follows the same pattern of booms and busts.
UNREALISTIC EXPECTATIONS
The last mistake is setting unrealistic expectations. Beginner traders think that they can become rich quickly with trading. Unfortunately, this is a lie that comes from social media influencers and marketers who need to sell a dream to make money.
Just to put things in perspective, the best traders/investors in history average around 30% yearly returns in the long run. This includes traders like Druckenmiller and Soros who once bet 200% of their fund on one single trade.
On the other hand, we have social media influencers talking about things like 1% per day or 10% per month consistently. You can see the huge discrepancy here. In general, if you can consistently beat the S&P 500 returns over the long run, then you are good.
FINAL WORDS
You should approach trading/investing as a skill that will help you grow your wealth over time, not something that will make you a millionaire overnight. It’s not a way out of poverty or way out of your job.
Fall in love with the process, learn every day, give yourself time to understand things, don’t rush and enjoy the ride. Trading can teach you a lot of stuff, from geography to history, from politics to economics. All of this will make you a better person both in the markets and in your life.
