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how to not lose money trading

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How To Avoid losing a lot of money day trading

The primary goal of virtually every day trader is to make as much money as possible. Sadly, not many traders make it to the breakeven point because they end paying the markets. With the right trading education, there is no limit to how much traders can make from the financial markets. However, some first-timers get carried away by greed and begin to trade against their plan – a decision that will eventually come back to bite them in the behind.

Before diving into the financial markets, every focused and goal-oriented day trader will care to know how to not lose money trading. If you are familiar with financial markets (stock, options, or futures), you will know it is full of opportunities. You would also know that trading is not a smooth route to success or financial freedom, as most people will think. It has its ups and downs — some days you can win, and other times, you learn from losing trades.

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Top tips on how to not lose money trading

As we mentioned earlier, the financial market is a mix of wins and losses. T be a successful day trader, you must invest time to learn how to not lose money. There’s a myriad of supposed rules and regulations out there on how to protect your trading accounts and keep losses low.

While some of the tips and guides on how to not lose money are not far from the reality of trading, it all boils down to your individual efforts and commitment to be successful. As the famous saying goes, you can force a horse to the stream, but you can’t force it to drink water.

The facts that stories of people blowing their trading account keep making it to the fore despite all the dos and don’ts of trading been published almost daily is an indication that a significant number of traders enter the markets with the mentality that trading is a get rich quick venture and they just want to wing it.

If you are wondering if one can actually and not lose money, the answer is yes. It is possible to trade without losing all of your money or crashing your trading accounts. However, you must bear in mind that you will lose some trades occasionally, and those losses are opportunities to fine-tune your trading strategy. In trading, not losing money is synonymous with keeping losses low.

How to not lose money trading: Factors to consider

Having mentioned that, let’s take a look at a checklist of factors to consider while trading so that you don’t end up enriching brokers instead of yourself.

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• Do your homework

Just because the stocks market or any other financial market is easy to get into and presents mouth–watery opportunities shouldn’t hinder you from doing due diligence. Regardless of whether you are new to trading or you are way up on the ladder, you should care to know how the financial market works and what factors affect it. While the bulk of trading knowledge is learned from experience, you must also invest time to understand how economic and geopolitical affect the market dynamics.

Part of doing your assignment includes learning to develop sustainable and profitable trading plans, learning how to adapt to the ever-changing market conditions, and mastering the rules and regulations and how world events impact the markets.

With all of we have mentioned this far, you will be better equipped to spot opportunities, evaluate investments and determine how much of your capital is worth risking on any trade. Think risk management.

• Find a reputable broker

Brokers are an indispensable element or entity in the financial markets. As a day trader who is set to make the most of the stock market while also protecting their trading account, you must ensure that you are making the right choice of broker. With so many countries yet to regulate brokerage companies in their quarters, you must be careful not to fall for gimmicks or scams.

One of the easiest ways traders lose money is by entrusting their investment to an unlicensed and unregulated broker. To be on the safe side and reduce the risk of losing money trading, you must research every broker that comes your way. Check to see if they are licensed to operate in your country and double-check their offering.

Speaking of what the broker is offering, you should research their leverage amount, commissions, and spreads. You also need to inquire about their initial deposit, account funding, and withdrawal policies. That way you will be sure of who you are dealing with and not get your money stuck somewhere you can’t access.

A responsive customer support is a plus for any broker. So, always keep an eye out for the responsiveness of your choice of broker.

• Use a practice account

Having done your assignment and finding a reputable broker to do business with, opening a demo or practice account is next on the checklist for how not to lose money trading. Thankfully virtually every trading platform allows traders to open a practice or simulated account, which allows you to take hypothetical trades.

The leading advantage of trading a demo account is that you are not trading with a funded account. Another advantage of demo accounts is that they allow you to test order–entry techniques without fear of losing money.

It is not unusual for traders to make irrational decisions in the heat of trading. Out of fear and lack of confidence, a lot of traders (especially first times) have been seen to accidentally add to a losing position instead of closing losing trades.

Another common mistake traders make that causes them to lose money trading is multiple errors in order entry which often leads to devastating financial implications. Considering how much stress these mistakes can cause, it’s always best to practice on a demo account before moving trading a funded account. After all, practice makes perfect.

• Start small when going live

When you are confident of your trading skills and are ready to take on the market with a live account, it is advised to start small.

No matter the experience you have gained from trading a demo account, emotions and other market conditions like slippage will still get in the way of your trading plan when you’re live.

Trading live will always be different from simulated trading. To be sure that you are not jumping the gun and to help you have a better foothold in your craft, you can backtest your trading plan by starting small and gradually increase your account size from there.

The advantages to starting small are endless. Last but not least, trading plans that seem exceptional on a practice trading account can fail woefully on a live account. As such, starting small allows you to evaluate your strategy and help you put your emotions in check while also learning how to perfect your order entries without risking too much.

In closing

In addition to all we have shared, other tips to consider adding to your checklist on how to not lose money trading include using reasonable leverage and learn to keep a record of your trades. Keeping records makes it much easier to evaluate your trading plan.

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