THE PSYCHOLOGY OF TRADING: WHY MOST TRADERS LOSE?You have probably heard that most people who attempt trading end up losing money. There’s a
good reason for this, and the reason is primarily that most people think about trading in the
wrong light.
Most people come into the markets with unrealistic expectations, such as thinking they are
going to quit their jobs after a month of trading or thinking they are going to turn $1,000 into
$100,000 in a few months. These unrealistic expectations work to foster an account-destroying
trading mindset because traders feel too much pressure or “need” to make money.
When you begin trading with this pressure, you inevitably end up trading emotionally—which is
the fastest way to lose your money.
To be specific, let’s break down the 4 Main Emotional Factors that destroy portfolios: FOMO,
Fear, Revenge, and Greed.
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1. FOMO (Fear of Missing Out)
FOMO is an emotional state experienced by almost everyone. For traders, it is accelerated by
feelings of jealousy, envy, and impatience. The depth of these emotions is intensified by the
fast-acting environment of the Crypto and Forex markets.
How to Avoid FOMO:
● Develop a Routine: Trading is often a singular, lonesome pursuit. Eliminate distractions
and focus on identifying key market spots to tune out external chatter. Avoid social
media outlets and ungrateful attitudes.
● Be Present Minded, Future Thinking: Just because a trade is lost does not mean the
following transactions will follow suit. There are always more trading opportunities. Stay
present-minded yet have your scope set upon the future goals of your trading.
● Employ a Trading Plan: No plan is perfect, but a well-developed plan covers most
eventualities, helping you invest with lower risk exposure and more consistency.
Establish short-term, medium, and long-term trading goals.
● Take Joy from Trading: FOMO stems from insecurity and greed. Once a trader grasps
this truth, they can cast out this reckless state and trade with maximum potential.
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2. GREED (The Account Destroyer)
There’s an old saying regarding markets: “Bulls make money, bears make money, and pigs
get slaughtered.”
This means if you are a "greedy pig" in the markets, you are almost certainly going to lose.
Greed acts as a trader’s kryptonite. When the desire for wealth clouds logic, traders make fatal
mistakes such as:
● Not taking profits because they think a trade will go on forever.
● Adding to a position simply because the market moved slightly in their favor (without
logical price action reasons).
● Using excessive leverage to maximize potential gains.
● Doubling down on losing trades (The Martingale Strategy).
Advice for Avoiding Greed:
Think of greed as the counterpart to discipline. Traders who are well-poised and consistent are
less likely to fall victim to greed. It is critical that every trader consistently follow trading plans;
otherwise, the likelihood of slipping into destructive habits is far greater.
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3. FEAR
Fear often arises after a trader hits a series of losing trades or suffers a loss larger than what
they are emotionally capable of absorbing.
When fear takes over, you hesitate. You might see a perfect setup that aligns with your strategy, but you freeze because you are afraid of losing again. Or, you might cut a winning trade too early because you are terrified the market will turn against you. Fear paralyzes your ability to execute your edge.
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4. REVENGE TRADING
Revenge trading is a natural emotional response when a trader suffers a significant loss. The
idea is to recover the money immediately. The thinking is: "If I put on another trade right now, I can win it back."
Usually, this "expected" winning trade turns into a losing trade—often bigger than the first one.
5 Effective Ways to Fight Revenge Trading:
1. Step Back Temporarily: Take a day or two off. If you must be in the markets, trade
incredibly small, but the best course is to walk away.
2. Make a Self-Assessment: Once you are emotion-free, analyze what led to the loss.
Was it a bad strategy, or bad execution?
3. Assess Market Conditions: Is the market too volatile? Are there no solid trends?
Sometimes the best trade is no trade.
4. Assess Your Strategy: Check your entry and exit criteria. Did you actually see a setup,
or did you force a trade out of anger?
5. Make Necessary Adjustments: Note the feedback, learn the lesson, and mentally
"throw" the bad trade away. Affirm to yourself: "That is how I will do it next time."
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SUMMARY
Trading is simple, but it is not easy. The charts are the easy part; managing your own mind is
where the real work begins. Identify these four emotions— FOMO, Fear, Greed, and
Revenge —and suppress them the moment they arise.
Are you controlling your emotions, or are they controlling your portfolio? Let me know in
the comments below.
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Disclaimer: This content is for educational purposes only. Trading involves significant risk.
