Aspiring to become a successful trader? To achieve that, it’s essential to steer clear of common errors that traders often fall prey to. Mistakes are an inevitable part of the learning process, but what sets profitable traders apart is their ability to learn from them and put an end to repetitive blunders. In this lesson, we will delve into the most frequent mistakes traders make and provide straightforward solutions to them. It’s now up to you to heed these lessons and ensure to evade them as you persistently study and trade the markets.
Being in Too Many Trades at Once and Over-Trading
One of the most common mistakes traders make is falling into the trap of over-trading and being involved in too many trades at once. Unfortunately, this mistake is not only made by beginners, but also by a significant portion of traders who fail to make consistent profits. In fact, research shows that 90% of traders lose money in the long-term due to over-trading.
It is important to remember that there is no logical justification for being in multiple trades simultaneously. Many traders give in to the temptation to constantly trade and create unnecessary reasons to enter the market, or invent non-existent signals. The reality is that unless you learn to control your impulses and stop over-trading, you will not be able to achieve consistent profits.
One effective way to overcome this challenge is to change your perspective on trading and understand that “making money” does not necessarily mean being constantly involved in the market. By remembering that less is more and that you will make more money in the long run by trading less, you will start looking for reasons why a trade may not be successful instead of finding excuses to enter the market.
Too Much Time Thinking about Trading and Looking at Charts
One of the most prevalent errors made by novice traders is engaging in day trading. Many individuals are introduced to the concept of “day trading” before they have a thorough understanding of it, leading them down a path of misguided strategy. This often results in a cycle of over-trading, indulging in short-time frame charts such as the 5-minute or 1-minute, and ultimately falling into the trap of gambling and trading addiction.
It is crucial to understand that lower time frame charts hold less significance compared to their higher time frame counterparts. This is because higher time frame charts reflect a greater amount of data, thus carrying more weight in analysis. For instance, a daily chart bar holds more importance than a 1-minute chart bar. Trading higher time frames requires a higher degree of patience, but in return, it offers more reliable trading signals and reduces stress. In other words, it is a fair trade-off. By trading daily charts, one can set up a trade and walk away for 24 hours or more, enabling them to adopt a nomadic trading lifestyle and enjoy the benefits that come with it.
Trading With Real Money Before You’ve Tested Yourself on a Demo Account
One of the most detrimental mistakes that new traders make is trading with real money before testing their strategies on a demo account. This leads to a number of issues such as making careless mistakes, not being familiar with the account, and not knowing if the strategy is even effective. It’s crucial to practice and test your strategies on a demo account before risking real money in the market. This allows you to become familiar with the platform, understand market conditions and develop confidence in your trading method before investing real money. Your goal as a trader should be to thoroughly test and refine your strategies on a demo account before entering the live market.
Getting Distracted by the News
The phenomenon of being distracted by news in the trading world is a real issue. Traders may fall into the trap of searching for reasons to justify their trade decisions and may be swayed by various opinions found on the internet. Additionally, traders may research economic and trading news and believe they have uncovered a pattern or prediction, leading them to place trades based on their assumptions. This can be dangerous as often the news has already been factored into the market, leading to sudden price changes, or “whipsaws,” that can be difficult to navigate and result in financial losses. To avoid this, it is recommended to focus on trading based on raw price action rather than attempting to predict market movements through analyzing news. By studying and understanding price action, traders can also gain insight into market movements without the added confusion of interpreting news.
Not Understanding That Every Trade Has a Random Outcome..
A common mistake made by traders is feeling a sense of urgency or desperation to be in trades. This often arises from placing too much emphasis on trading as the sole source of income or financial security. However, it is important to understand that trading is inherently risky and demanding, both mentally and emotionally. Therefore, it is crucial to not rely solely on trading as a primary source of income, and to maintain a secondary source of income or a long-term investment strategy.
By not putting all of your money at risk in the markets, you can avoid putting unnecessary pressure on yourself to make money through trading. Success in trading comes from being calm and collected and not becoming emotionally invested in the outcome of any single trade. When you commit too much emotional and mental energy to trading, it can lead to poor decision making and ultimately result in failure.
Not Trusting Your Decisions and Sticking to Them
When entering a trade, it is important to remain committed to it unless there is a significant change in the price action on the same time frame that the trade was entered. It is crucial to internalize this concept as it is essential to the success of your trading career. Often, traders may analyze the market, identify a trade signal, set it up, and place it, only to become anxious when the price moves against them shortly after. It is important to understand that this is a normal occurrence in trading and losses will happen.
If you react emotionally to every trade that goes against you, it will lead to poor decision making and ultimately result in blowing out your account. As previously stated, it’s important to remember that the outcome of any given trade is random and it’s the end result of a large series of trades that matters, not any singular trade. Therefore, it’s important to not second-guess every trade and let them play out, allowing the market to do the “thinking” for you. This will help you to trade with less stress and increase profitability. In short, avoid overthinking and let the process take over.
Focusing on the Money NOT the process…
As previously stated, it is essential to step back and allow the process to take control. Many traders tend to place too much emphasis on financial rewards and not enough on the key elements of successful trading such as strategy, proper execution, adherence to the plan, risk management, and position sizing. Instead of fixating on profits, focus on following a sound process and thinking correctly. Profits and rewards will naturally follow as a result of this approach.
Messing With Your Live Trades…
Want to sabotage your trading and consistently make mistakes in your trades? The easiest way to do that is to constantly make changes to your trades after you’ve entered them. Though this may sound like a joke, it is a common mistake made by traders. The most profitable course of action, in most cases, is to leave the trade alone after it has been entered. However, many traders, particularly beginners, tend to interfere with their trades and end up losing money as a result.
To be successful in trading, it is essential to learn to resist the urge to make changes to your trades after they have been entered. This will help you to make consistent profits in the long run.
Chasing an Entry you missed with FOMO
It is a common scenario for traders to miss a trade opportunity they liked, for various reasons, and then later see the market move in their favor without them. This can be frustrating, but it is important to resist the urge to enter the market after it has already moved without you. The best course of action is to wait for the next opportunity and remember that the market will always be there. Avoid the emotional impulse to trade or enter a missed trade, as it can lead to financial losses.
Not Pre-defining Risk…
Are you aware of your risk per trade? Is it a loss that you can accept and still be able to sleep well at night? If not, it’s time to reassess. Many traders fail to determine a dollar amount they are comfortable losing per trade and ensure it’s an amount they can financially and emotionally handle. If you haven’t done this and you’re currently trading live, it’s essential to stop trading live until you have established your risk tolerance.
Making mistakes is a natural part of the learning and trading process, especially for beginners. However, what sets successful traders apart is their ability to learn from those mistakes. Those who go on to make significant profits in the markets are not those who never make mistakes, but those who learn to avoid common mistakes and use them as opportunities for growth. It is easy to repeat the same mistakes over and over, leading to losing all your trading money. The goal is to prevent this from happening.
I can provide guidance through my lessons and professional trading courses, but ultimately it is up to you to implement what you have learned consistently. I cannot trade for you or remind you of what to do and what not to do on a daily basis. However, my courses and daily guidance through market commentary and email support provide a comprehensive and concise education that incorporates my knowledge and experience. It’s up to you to decide if you have the discipline, dedication, and passion to put in the work and make it work for you.