Why Most Retail Traders Lose Money (and How to Beat the Odds)

11.09.2025

Education

The market is a paradoxical place. The number of buyers and sellers is always the same. The price goes up or down. This means that half of the traders should be in profit, and half in losses. At first glance, everything is logical. But the CFTC data says otherwise. About 80.0-90.0% of traders lose money.

The popular trader Bill Williams drew attention to this anomaly. He explained everything by psychology. The anomaly was also highlighted by the classic Benjamin Graham. He saw the reason for the losses in the brokers' commission. All this is true. To complete the story, the problem of lack of system is missing. The legendary Jesse Livermore warned about it.

There are other versions. Lately, there has been a lot of talk about the negative influence of large players. That is true. Their task is to take money from retail traders. But it has always been like that. In the 19th century, and in the 20th. Nothing has changed in the 21st. The struggle between retail and large players is the market.

The price chart is the same for everyone. It equalizes the chances of winning. Another thing is that large participants trade professionally. Systematically. Without emotions. This is their main secret. If a retail trader uses the same professional approach to strategy, risk management and psychology, he will definitely be among the profitable ones.

Strategy

In "The Art of War" Sun Tzu said - "He who wins before the battle by preliminary calculation has a lot of chances; he who - before the battle - does not win by calculation has little chance. He who has a lot of chances wins; he who has little chances does not win; and even more so he who has no chance at all. Therefore, for me - at the sight of this alone - victory and defeat are already clear."

Almost 2.5 thousand years have passed, and you can't say it better. There is no point in trading with real money until a trader gains an advantage. It can only be acquired with the help of a trading strategy. If you find repeating patterns in the price movement and open transactions only at these moments, you will have an advantage.

If, with the same ratio of take profit and stop loss, the strategy gives 6 profitable transactions and 4 unprofitable ones over a distance, you can already work. This is the minimum threshold. For experienced traders, it is higher, from 7 profitable to 3 unprofitable. The main thing is not to forget that no matter how accurate the pattern is, it also needs insurance in case of an error. Only risk management can help with this.

Risk management

The main function of risk management is to ensure the required number of attempts. If a trading strategy during testing showed the maximum series of losses of 5 transactions in a row, the risk in the transaction should take this into account.

If the stop loss is 10.0% of the deposit, 5 unprofitable transactions will deprive half of the funds. A private novice trader will say - normal. Now there will be a positive series of 10 transactions. It will lead me far into profit. Perhaps this will happen. But in the case of a professional, this is unacceptable.

In companies, a manager monitors the risk. He will remove such an aggressive trader much earlier. If we are talking about fairly large funds, few can withstand the loss of 50.0% of the capital. And continue systematic trading. Most likely, he will get into a state of overtrading. He will try to quickly recoup. And break down.

Therefore, standard rules allocate risk capital. Usually this is 10.0% of the account. This is where you need to fit the maximum losing streak. Preferably with a reserve. If these are 5 losing transactions, the risk per transaction should not exceed 2.0%. But in reality it will be less than 1.5%.

Psychology

At first glance, psychology is the most mysterious aspect in trading. Crowd psychology. Chaos. Cognitive distortions. All this is very fascinating. A lot of books have been written. However, the reality is much simpler.

A trader should just monitor his internal state. If he is burning with trading, everything is fine. If he starts to get tired, especially if he feels disgusted with trading, it's time to take a rest. Usually a week is enough until the desire to conquer the market returns. A psychologist and a risk manager monitor the condition of institutional traders. They send them on rest when necessary. Retail traders are left to their own devices. This creates a lot of problems. Therefore, it is best to follow a strict schedule of 3-4 weeks of trading - a week of rest. Following these rules is a profitable approach.

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