Top 7+ Common Trading Mistakes in the Financial Market

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.

Day traders, especially the newer ones, make many mistakes. But most of them can easily be avoided! Even at Day Trade the World (DTTW), we have seen many traders exit the game because of some of these mistakes.

In this article, our focus will be on the common mistakes that traders make and how you can avoid them.

#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. They simply take it as a less seriou thing.

Unfortunately, it doesn’t always work like that. You can conduct a comprehensive fundamental and technical analysis and still incur large losses. And if you don’t take trading as a business, you will often make mistakes.

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.

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Foresee shortcomings

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.

Find a trading routine that works for you. A watchlist and evaluation of the mistakes you made in the previous trade should be part of that trading process.

Don’t manage your time

Manage your time well. If you have a shop in the street, you will always open it in the morning and close it at the end of the day. Always be discplined and have a routine.

#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.

That’s because, as fun as day trading is, it is still a risky business. Indeed, many people who start their trading careers fail. More than 80% of them fail within their first months.

Therefore, if you have a stable job, we recommend that you start the shift to becoming a day trader gradually. This simply means that you should first focus on your job that brings you money as you trade part-time.

Furthermore, in day trading, you eat what you kill, meaning that there is no salary at the end of the month. You will only make money that you generate from the market. Fortunately, you can do your job and day trade simultaneously because many trading platforms offer mobile apps to trade. You can access these apps wherever you are.

Take advantage of extended hours

When the markets close, a trader doesn’t necessarily have to stop trading. This is thanks to after hours. Of course, there are many more limitations than standard hours, but it is an option to consider if you want to familiarize yourself with the markets little by little.

#3. Expecting to be perfect

A common mistake that many day traders make is expecting to be perfect. After going through months of preparation and studying, they expect to open trades that are always profitable. In reality, this rarely happen, even to experienced traders and investors.

There are many examples of experienced traders who have made serious mistakes.

Example of failures (pro traders)

A good example is Bill Huang, an experienced trader and billionaire who worked for Tiger Global Management, the well-known hedge fund. In 2021, his overleveraged trades led to a significant loss in the market as investment banks activated their margin call. This led to banks like Nomura and Credit Suisse losing more than $6 billion combined.

In this instance, an experienced trader with billions of assets was not affected.

Bill Ackman is another famous hedge fund manager who lost billions of dollars after his bet on Valeant Pharmaceuticals failed.

Therefore, as a trader, always remember that you will never be perfect. Not all trades will go your way. Therefore, you need to take some actions to prevent these challenges. For example, always size your trades well, have a stop loss, and be ready to change your mind.

#4. 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.

This is an important method of knowing whether there is any growth. Also, it will help yo u identify the common mistakes that you do and how you can avoid them.

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

#5. 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.

#6. Applying what happened yesterday today

Another common mistake that many day traders make is to apply what happened in the market yesterday today.

Perhaps, you made some money shorting a stock on Monday. You should not assume that the same thing will happen on Tuesday. In other words, the market is usually a dynamic place where things change regularly.

You can avoid this by looking the market with different lenses every day. If you made a big profit yesterday, remember that the situation can change and you can make a big loss today. Also, remember that what made you money yesterday could lead to a big loss today.

Therefore, as we recommended above, always have a journal that highlights some of your profits and what caused them. This will help you avoid making this mistake.

#7. 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!

Other mistakes

There are other mistakes that many day traders make in the market. Some of the most popular ones are:

  • Position sizing – This is where they open big trades each time. While this could make you a lot of money, it also exposes you to substantial losses.
  • Not doing research – At times day traders open trades without doing their background research. This is wrong. Before you open any trade, ensure that you have looked at the fundamentals and technicals.
  • Not having a stop-loss – You should avoid leaving your trades unprotected with a stop-loss. This is an important tool that will stop your trades automatically.
  • Overtrade – Another common mistake that many day traders do is overtrading. This is where they open a lot of trades per day. This is wrong.

Final Thoughts

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.

External Useful Resources

  • Treat trading as a business – FxStreet
  • Day Trading: Smart Or Stupid? – Forbes

Leave a comment



George Papazov

4 weeks ago

The very informative post-Mr. Author. Mistakes asr, not the barrier of any trading or business; if you can learn from it & never repeat this again. Mine also has the same point of view. Your points are logical & effective. But you should also write on the probability of success in trading after failing.

DTTW™ Daniele

4 weeks ago

Hi George, thanks for your feedback! We’ve talked about it in other blog posts and will talk about it in the future, for sure!

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