Trading is not like gambling (here we explain why). It is not as simple of opening a trade and watching yourself become a millionaire within a few days.
It is a business, just like any other, that requires constant learning, practice, and discipline. The learning process is crucial for novice and experienced traders alike.
In this article, our focus will be on the common mistakes that traders make.
#1. Failing to treat trading like a typical business
For most novice traders, trading is all about getting acquainted with the latest news, deciding on whether to take a short or long position, and subsequently getting hefty profits.
Unfortunately, it doesn’t always work like that. You can conduct a comprehensive fundamental and technical analysis and still incur large losses.
Train with a demo account
To start with, trading on a demo account for a considerable amount of time will help you understand the intricate details of trading. It is also important to note that all traders, including the most seasoned ones, experience certain pitfalls in trading.
Just like any other business, your focus should be to guard against the shortcomings that are likely to occur. As a trader, you have invested your funds and time in the business.
For this reason, put in some extra effort to ensure that your investments pay off. Trading is not a get-rich-quick scheme.
#2. Falling into the pressure of reaching a certain financial target in a trade
Being a fulltime trader means you fully depend on trading to cater for your bills and sustain your lifestyle. Such a scenario will make you trade haphazardly as you strive to make a specific amount of money in a trade.
Instead, the key to being a successful trader is discipline and sticking to your trading strategy.
Avoid economic hardship
For a beginner, it may be helpful to have a part-time job before you are able to make a decent living from trading. With that, you will have taken away the pressure to make a certain amount of money in a single trade.
Over time, you will be comfortable investing a substantial amount of funds.
#3. Failure to keep quality records
As mentioned earlier in this article, trading is a business just like any other. A trading journal is a crucial tool for any trader.
Success in this profession does not come without a comprehensive level of learning, practice, and planning. Your day should end with you evaluating how you traded and why you made those specific decisions.
The journal will help you track your progress and learn from the mistakes you made when entering/exiting a trade. Subsequently, you will be in a position to adjust your trading strategy accordingly.
Identifying your strengths and weaknesses
In addition to developing a profitable framework, a trading journal is also essential in identifying your strengths and weaknesses and keeping your emotions in checking. This toll will also help you stay clear of trades that you are unsure about.
A detailed trading journal includes all the relevant information including:
- Order type
- Your reasons for entering or exiting the trade
- Market conditions during the trade
- Length of the trade
- Size of the trade
- Outcome of the trade
#4. Scaling up too fast
With reference to this trading aspect, the rule for any trader is that you should never scale up based on a one-off scenario. For instance, the value of a company’s stock can rise from $10 to $50 in a day.
It would extremely risky, and irrational, to increase your leverage based purely on the day’s market conditions and the results of a trade.
The way to avoid this trading mistake is by keeping and following a detailed trading journal. The information in your journal will help you identify a trend, or lack thereof. Subsequently, you can use the collected data to decide if you should scale up in your next trade.
#5. Abandoning a trading strategy too fast
It is common for a trader to exit a trade after a small loss or win before reaching the set stop loss/take profit. In most cases, you will end up regretting the move as the market gets to your initial target.
Trading psychology or an unreliable trading process are some of the reasons why traders abandon their strategies too fast.
To avoid this mistake, identify an apt exit strategy and stick to it at all time. A trading journal, coupled with the set-and-forget trading strategy will also help in sticking to your trading process.
› Watch out for these emotions. They could destroy your trading account!
No trader is perfect. Even the most experienced ones in the industry incur hefty losses. The key to successful trading is to identify and stick to an effective trading strategy, keep a detailed journal, and learn constantly.
Besides, it is crucial to avoid the common trading mistakes, learn from those you have made, and adjust your trading strategy accordingly.
To get a more complete idea, we also recommend that you look at this list with many trading mistakes that even pro traders often make.