My Chat Session with Trader :

In your opinion what is it that causes traders to lose most?

That’s easy. The answer ties in exactly to what we were just talking about, namely insufficient risk control. It is one of the most common reasons why traders get into trouble. One way or the other, the cause for large losses and traders blowing up is insufficient risk control.

Any other errors that traders often make that end up in losses?

 All the errors I can think of really come back to inadequate risk control. If someone overtrades a position, it’s an example of insufficient risk control. If a person gets married to a position and just stays with it, giving it more and more time, it is insufficient risk control. A lot of the trading mistakes that people make when you go down one level deeper are due to insufficient risk control. Of course, people can make analytical mistakes, they can call the market wrong, and so on, but then again for that to do real damage, it’s going to have to come down again to some inadequacy in risk control.

So it basically boils down to one word — discipline.

 Yes. It’s not sufficient to have an effective risk control strategy, you also need the discipline to apply it. Discipline also comes into play in other ways. If you have a strategy that signals a trade that looks very scary but fulfills all the requirements of your methodology, you need the discipline to take the trade. In other words, discipline applies not only trade to getting out of a trade but also getting in. Another aspect of discipline is avoiding trades that aren’t part of your methodology. To summarize, discipline applies to many aspects of trading, risk control being just one.