One of the reasons traders fail (ie they lose the bulk of their accounts) is because they are under-capitalised for the position sizes they attempt to trade.
I know this from personal experience.
Instead of taking a 1% or 2% risk based on the size of capital available, some traders (I am guilty) will take 30% or even more. Sounds insane, but it happens easily enough when opening multiple positions. before you know it, you have committed up to 50% of your account, making your vulnerability extreme.
This is particularly important because of the existence of such things as price spiking in the market.
Some people say this is stop-hunting (it is) and it happens because professional traders want to go long/short at specific Support/Resistance levels.
Professionals want to enter their trades at the same places dummy traders put their stops. The pro’s do this because they want to sell high and buy low. Dummy traders put their stops high when they short at the wrong place, and vice versa. The pro’s know this and drive price up to hit these stop levels. That is why price turns around immediately after stops get taken out.
So when price spikes a bit … or a lot … then you have traders taking a loss.
If this did not happen, then fewer traders would be recording a loss.
But it is a fact of trading life. The way to improve the trading mortality is to ensure you/I don’t over-commit to our positions. Maximum 2% is certainly boring, but it IS safe.
I stop short of saying that brokers should prevent these trades from becoming valid, based on the size of the account.That would be nanny-state nonsense. But if traders will not limit the size of the trade based on deposited capital, then they will become a statistic, and one of the 70-something % who are unprofitable.
I know this could be regulated into prevention, but that would penalise good traders who are profitable based on higher % risk. Not sure where to draw the line with the issues of industry regulation and personal responsibility, but I favour the latter.
I seriously doubt that many of us understand the actual risks we take - I took a long time to “get it” but some proceed and take that risk regardless. Some people have no respect for money, and gamble it away anyway with unwise trading.
Another thing that losing traders probably don’t do correctly, is place conditional sell orders at resistance, where they would normally place their stop-loss, and conditional buy orders where they would normally put their stops at support. Once this mental correction is made, then traders can certainly begin to make profitable trades.
Would be keen to hear the opinion of others on these points.