Trading Psychology – Why Traders Lose?

Successful trading requires the trader to deal with many conflicting ideas and information while maintaining a consistent attitude towards winning and losing. Traders must possess several contradictory traits. For example, traders must have an ability to take risks and let trades run, combined with the ability to cut risk quickly. They must also have conviction regarding their strategies and trades usually while the market is providing mixed signals or incomplete information and the ability to live with their decisions.

Traders must possess seemingly incoherent and diametrically opposed blend of intellectual and psychological abilities, especially a strong desire to win, coupled with the ability to accept failure.

Here are a few observations:

Imagine an emotional airline pilot?

You cannot imagine one, and for good reason. Traders who are emotional will crash their accounts just as a pilot would a plane. Traders must suppress their emotional urges to be able to focus on chaotic-sometimes terrifying situations. While losing money cannot be compared with the prospect of losing a life, it can create similar emotional stress, and some traders can have suicidal thoughts after a big loss.


The desire for more can propel traders to earn incredible sums, but it can destroy as well. Indeed, more accounts have been blown by traders who took too much risk, overtraded, or looked for “revenge” in the marketplace after suffering losses. Excessive anger after a losing trade, or extreme happiness after a winning trade, is a sign of the need to feel in control.

Churn and burn

A day trader might sit for many hours in front of a monitor waiting for a trading opportunity, only to find none. Invariably, the temptation to enter a trade ‘any-trade’can contribute to trader’s losses. The desire to feel that one has achieved or earned each day can make for mistakes. Traders also risk burnout from the emotional strain, which can peak, especially if one or two days of losses wipe out winnings earned over many days.

Unrealistic goals

Traders can be delusional about what they expect to achieve, and about the time it takes to do it.  This can keep traders from taking progressive steps towards realizing their goals. However, the power of belief, faith, hope and even delusion, can have a positive impact. Steve Jobs the founder of Apple was known for having an alternative view of technology and business, which many thought delusional.  However, he worked out the seemingly impossible through work, sharing a trait with McDonald’s founder Ray Kroc-whom often said, “Hard work is the meat in the hamburger.” Hard work has another advantage. It tends to instill a greater appreciation of what can be achieved and show the way towards solutions.

Maintaining discipline

Losing can have an emotionally disruptive effect on our lives.  Winning can have the same effect. We can become overconfident which can lead to losses. Successful traders learn to treat both winning and losing as non-events, and just part of the process. Indeed, forex trading can become compulsive and many traders develop an addiction similar to those found in gamblers. These types of traders need to be “in the game” all the time.

Fear of success

Some traders will cut their profits short repeatedly, even after they have seen similar trades that continued towards substantially larger profits. This can be a sign the trader does not feel they deserve to win or believe they can. Subconscious thoughts often undermine traders in ways they might not be fully aware of.  A trader needs a huge helping of self-esteem, which should not be dependent on how they trade. Ironically, many traders tie the way they feel about themselves to other aspects of their lives, based upon their performance as traders.

Fear of failure

For many traders, particularly male traders, their ego is on the line when they trade. If they suffer a loss, they view it as a personal affront to their self-respect and sense of masculinity. This usually leads to greater losses from “revenge” trading.  Also, some will get out of trades too early, earning a few pips when they could earn much more. This can reflect a fear of loss as well as a need for instant gratification.

Lack of Training

Think of any endeavor-sports, music, business…and recall how many years of training and dedication it takes for individuals to achieve success. Trading is no different. Though it can seem Sisyphean, with our trading losses akin to the boulder that pushed the King of Greek mythology back down the hill time after time, we can get to the top with sustained effort.

Defining Success

Traders must define for themselves, what it means to be successful. This refers not only to how much money they hope to earn or pips they plan to win, but what trading can offer beyond that. What are the mental rewards? Often, traders have unrealistic expectations of what they can achieve, particularly in the short to intermediate term. The best traders learn to overcome their own limitations by focusing on “peak performance.” This means they don’t compare themselves with others or with how they performed the day before yesterday.  They only look for ways to improve their own skill level, concentrate on the game, and especially the process.