Introduction: Why Small Traders Lose Money

Small traders are a unique group of individuals who are often characterized by their passion for the stock market and their desire to make a profit through trading. However, despite their enthusiasm, small traders often struggle to make a consistent profit and may even lose money in the long run. In this blog post, we will explore some of the reasons why small traders may struggle and provide some tips on how they can improve their chances of success.

80% small traders Lose Money and How to Improve

Main points Small traders Must keep in Mind

Position Sizing

One of the main reasons why small traders may struggle is due to poor position sizing. Position sizing refers to the amount of money that a trader is willing to risk on a single trade. Small traders may be tempted to risk a large portion of their account on a single trade in the hopes of making a large profit, but this can be a recipe for disaster. By risking too much on a single trade, small traders are putting their entire account at risk, which can lead to a rapid depletion of funds if the trade goes against them.

To combat this issue, small traders should focus on proper position sizing by only risking a small percentage of their account on each trade. This will help to protect their account and reduce the risk of losing all of their money in a single trade.

Trading Psychology

Another reason why small traders may struggle is due to poor trading psychology. Trading can be an emotional rollercoaster and many small traders may be unable to control their emotions when trading. They may fall prey to common pitfalls such as greed, fear, and overconfidence, which can lead to poor trading decisions.

To overcome these emotional hurdles, small traders should focus on developing a sound trading plan and sticking to it. A trading plan should include a set of rules for entering and exiting trades, as well as guidelines for managing risk. By following a strict trading plan, small traders can avoid the emotional pitfalls that can lead to poor trading decisions.

Risk Reward Ratios

Another critical factor that small traders should consider when trading is the risk-reward ratio. This ratio refers to the amount of profit that a trader is looking to make compared to the amount of risk they are willing to take. Small traders may be tempted to take on large risks in the hopes of making a large profit, but this can be a recipe for disaster.

To achieve a better risk-reward ratio, small traders should focus on identifying trades that have a higher probability of success. This can be done by analyzing the market conditions, studying technical indicators, and keeping an eye on economic news. By focusing on trades that have a higher probability of success, small traders can reduce their risk and increase their chances of making a profit.

Overtrading is Also a culprit.

Overtrading is a common problem among small traders, and it can contribute to their losing money consistently. Over trading refers to taking on too many trades, often as a result of trying to make up for previous losses or to make a quick profit.

When small traders over trade, they often fail to manage their risk effectively, leading to large losses. Additionally, overtrading can lead to emotional and cognitive overload, making it difficult for traders to make rational, well-informed decisions. This can lead to impulsive and poorly thought-out trades, which can further exacerbate losses.

Another issue with overtrading is that small traders tend to have smaller trading capital and as a result, they can’t afford to lose too much on any given trade. So, when they over trade, they put their capital at much higher risk, and the likelihood of losing increases significantly.

To avoid overtrading, small traders should set clear and realistic goals for themselves, and not try to make up for previous losses or make a quick profit. They should also develop a solid trading plan and stick to it, even when things don’t go as planned. Additionally, small traders should focus on managing their risk effectively and taking only high-probability trades with good risk-reward ratios.

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In summary, overtrading can be a significant contributing factor to small traders losing money consistently. To avoid overtrading, small traders should set clear goals, develop a solid trading plan, and focus on managing risk effectively.

Type of Trading strategy

Trading with Fundamentals

Trading with fundamentals involves analyzing the financial and economic factors that affect the value of a security. This type of analysis is often used by long-term investors who are looking to make buy-and-hold investments. Traders who use fundamental analysis focus on factors such as a company’s revenue, earnings, and growth prospects, as well as the overall health of the economy. They may also look at news, market conditions, and other factors that could influence the stock’s price.

Traders who use fundamental analysis tend to hold their positions for a longer period of time, as they believe that the stock’s intrinsic value will eventually be reflected in the stock’s price. This type of trading is often considered to be less risky than trading based solely on technical analysis.

Trading with Technical

On the other hand, trading with technicals is a method of analyzing securities by studying charts and using mathematical indicators to identify patterns and make trading decisions. Technical analysis is based on the belief that all relevant information about a security is reflected in its historical price and volume data. By studying charts and indicators, traders who use technical analysis can identify trends and make predictions about the future direction of a security’s price.


Scalping is a type of day trading strategy that involves taking advantage of small price movements in a security. Scalpers aim to make a large number of small profits by buying and selling a security quickly. This type of trading requires a high level of discipline, as scalpers must be able to identify opportunities quickly and execute trades rapidly. Scalping is considered to be a high-risk strategy, as traders are exposed to the risk of large losses if a trade goes against them.

Swing Trading

Swing trading is a medium-term trading strategy that involves holding a security for a period of several days to a few weeks. Swing traders aim to make a profit by identifying trends and buying low, and selling high. This type of trading requires a moderate level of risk tolerance and the ability to identify trends in the market. Swing traders often use technical analysis to identify opportunities and make trading decisions.

Momentum Trading

Momentum trading is a short-term trading strategy that involves buying securities that are showing strong upward momentum, and selling those that are showing downward momentum. This type of trading is based on the belief that securities that are showing strong momentum will continue to move in the same direction, and that this movement can be predicted and capitalized on. Momentum traders often use technical analysis to identify opportunities and make trading decisions. This type of trading can be considered high-risk as the momentum could change quickly, and traders could lose money if they are on the wrong side of the trade.

In conclusion, there are several different types of trading strategies that traders can use, each with its own set of risks and rewards. Traders should choose the strategy that best aligns with their risk tolerance, investment goals, and trading style. Whether it’s trading with fundamentals, technicals, scalping, swing trading, or momentum trading, it’s important to have a clear understanding of the strategy and the risks involved before making any trades.

Which is correct Trading strategy then?

There is no one “correct” strategy that works for all traders, as every trader has their own unique goals, risk tolerance, and preferences. However, some strategies that have been shown to be effective for many traders include:

Risk Management: This is a crucial aspect of any trading strategy, as it helps to protect your capital and minimize losses. This can include using stop loss orders, diversifying your portfolio, and avoiding high-risk trades.

Trend Following: This strategy involves identifying the overall direction of the market and making trades based on that direction. This can help traders to capitalize on long-term market movements and avoid getting caught in short-term fluctuations.

Mean Reversion: This strategy involves identifying when prices have deviated from their historical averages and betting that they will return to their mean. This strategy can be applied in different time frame and markets.

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Position Sizing: This strategy involves determining the appropriate size of your trades based on your account size, risk tolerance, and the volatility of the markets. By using position sizing, traders can limit their risk while also maximizing their potential returns.

Technical Analysis: This strategy involves using charts, indicators and patterns to identify potential trading opportunities. Traders who use technical analysis often focus on price action and chart patterns to predict future price movements.

It is important to note that regardless of the strategy chosen, it is crucial for a trader to have a solid understanding of market conditions, risk management, and the ability to control emotions. Additionally, It is also recommended that traders regularly review and adjust their strategies as market conditions change.

Small trader is fit if preserves capital one month.

The statement that a small trader is fit for trading if they are able to preserve their capital without any loss and make a profit after one month, even after taking one trade at least in a trading day, is not entirely accurate.

While preserving capital and making a profit are important goals for any trader, it is not a measure of one’s overall fitness for trading. There are many other factors that are important to consider, such as a trader’s risk management skills, their understanding of market conditions, and their ability to control emotions.

Additionally, making a profit in one month does not necessarily indicate that a trader will be able to continue making profits in the future. The markets are constantly changing and a trader’s success is often dependent on a variety of factors, including luck and market conditions.

Furthermore, taking only one trade per day is not always the best approach. It can also limit the opportunities to trade, especially if the markets are volatile.

Therefore, it would be more accurate to say that a trader who is able to consistently preserve their capital, make a profit, and manage risk over a period of time, while using a well thought-out trading strategy, is better equipped for trading.

Investment vs Trading

Lastly, small traders need to be aware that trading and investing are two different things. Trading is a short-term activity that involves buying and selling securities in an attempt to make a profit from the price movements. On the other hand, investing is a long-term activity that involves buying securities with the expectation of holding them for a longer period of time.

While trading can be a great way to make a quick profit, it can also be a high-risk activity. Small traders should consider investing a portion of their money in low-risk, long-term investments. This will help to diversify their portfolio and reduce the overall risk of losing their money.

Poem: “Small Trader’s Dilemma: Choosing the Right Strategy

Small traders, always losing money,
Continuing to trade, despite the cost,
They should invest instead of trade,
And correct position sizing, to make their fate.

Trading psychology is key,
Control greed, so you can be free,
Risk and reward, must be in balance,
Otherwise, you'll fall into a financial palace.

Swing trading, scalping, and momentum too,
Fundamentals, all have their own view,
Each with its own risks and rewards,
So choose wisely, and make sure you're not bored.

In the end, it's all about the game,
To make money, you must take the right aim,
So study hard, and choose your strategy,
And you'll be on your way to financial victory.

Small traders lose their money,
Trading with hope and not with skill,
They should invest instead,
And let their money grow still.

Correct position sizing,
And trading psychology,
Control greed and risk,
And reap the rewards, oh so sweetly.

But they continue to trade,
With emotions running high,
They fail to see the truth,
And continue to watch their wealth die.

So heed this advice, dear trader,
And take control of your fate,
Invest wisely, and trade with caution,
And riches will come to your plate.


In conclusion, small traders often lose money due to a lack of proper education, risk management, and discipline. It is important for small traders to understand that trading is not a get-rich-quick scheme and requires a lot of hard work and dedication. To improve their chances of success, small traders should focus on educating themselves about the markets, developing a solid trading plan and strategy, and implementing effective risk management techniques. Additionally, it’s important for traders to have realistic expectations and to avoid overtrading, which can lead to emotional and financial ruin.

It’s also crucial for small traders to find a balance between preserving their capital and seeking profits, as well as finding the right strategy that suits their personality, preference and market conditions.

Finally, small traders must be able to control their emotions, be patient and disciplined in order to be successful in the markets. Successful trading requires ongoing education, self-reflection, and a willingness to adapt to changing market conditions. By following these principles, small traders can improve their chances of success and achieve their financial goals.

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