Getting into trading is no easy task, there is no one road to success. Every trader will need to find his own path to success and profitability. Whether we are talking about the instruments you will choose, the strategies you will apply, or the indicators you will follow, for many people they will all be different combinations of things. And those will depend on your interests, influences, how your mind works, and many other things. However, as different as these paths to success can be, there are quite a few common rules to follow and mistakes to avoid. We will be looking at the most common mistakes traders make. These mistakes are especially common to beginner traders.
Lack of preparation
One of, if not the most important mistakes traders make is trading without enough preparation. This is especially true for beginner traders since they are the ones at most risk here. Think of not being experienced enough to trade, not knowing how to trade the markets in the first place, but instead of going with a demo trading account, or going small, you open an account with a broker and make a big deposit. This might sound far-fetched for some, but it does happen. Another day or week passes, and the account gets burned. If you are looking to spend money gambling – go for it, but know what you are going for and know what you can expect to get from trading at high stakes without knowing what you are doing. Which is exactly that – a quickly burnt account.
Expecting to get rich quick
Another common mistake you can make prior to even starting to trade is expecting to get rich fast. If you do have this expectation somewhere deep in your mind, you have to realize, you will need to let it go. This powerful expectation will be fuel to your fear and emotion-based trading. It will affect most aspects of your trading, especially your decision making. Most experienced and successful traders know that they can expect to be profitable in the long term, however, it is a long term. They are less affected by both, the gains and the losses. They are much more neutral and know they will be making losses at times, which is part of the life of a trader. This does not affect how they feel about a particular trade or their strategy as a whole. They keep disciplined and focused, and do not let false expectations get the best of them.
Not treating trading like a business
Many people that are attracted to trading usually like to be their own bosses. They generally don’t like to be told what to do by a superior. While it can be a good trait, inspiring you to create your own business, it does come with its own challenges. For instance, if you are of such a personality, you might be too loose on yourself. However, if you are going into trading, if the only boss you ever have is you, you better make sure that that boss is the strictest boss you will ever have. That is, treat your trading like it is a business and really, be your own boss, in its fullest sense.
Entering a trade without a plan
Every trade not only has to have a reason behind it. It also has to have a plan. That is, what are you going to do if the price goes in your favor? What are you going to do if the price goes against you? Which take profit and stop loss levels will you set? What if the price goes sideways? What will you do if an unexpected event comes about? These are only some of the questions you need to be asking yourself whenever entering a trade. If you enter a trade without such a plan, you will set yourself up for a big potential disaster.
Trading without a stop loss
Another big mistake is actually having no stop losses in your positions. It is a common mistake made by those just beginning to trade. It might seem risky to put a stop loss on your position – what if the price rebounds just after it hits the stop loss? However, an even larger mistake is to not have any stop loss in the first place. You should know what price level change means that your trade did not go as planned. That would mean that your call was wrong on this trade, and you need to get out of it. Making and realizing losses is okay, and is a normal part of trading. No one successful trader can make profitable after profitable trade without ever incurring a loss. You should always keep that in mind and be sure to have stop losses in your strategy.
If you keep losing, do not keep trading
This common mistake mostly comes about due to two things. First, you might be having a really bad day, where nothing is going your way. Second, your strategy might simply not be working in the long run, and that’s why you keep losing.
As far as the first one goes, if you are having a bad day where nothing is going your way, it is usually best to call it a day and just defer trading to another day. If you don’t, you are at risk of making bad decisions due to being stressed out and emotions coming into play. Trading is a stressful occupation and persistent or large losses can break even the toughest and most experienced of traders. Do not keep putting yourself down for having a bad day, it happens to everyone.
As far as the second one goes, sometimes your strategy simply does not work. Whether it is due to bad timing of the market, or some inherent flaws in the strategy, if you keep losing on your strategy in the long run, do not keep trading – try and adjust your strategy, or simply look for a better one. It is probably one of the harder things to do, since it may feel like a defeat, however, bear in mind you may have to lose a few battles to win the war.