There is a big difference between successful traders and amateur traders. Successful traders know how to allocate capital, calculate their risks, and move on after losing money.
As someone who has traded for many years, We have come into contact with many people who want to be successful traders. In this article, We will highlight seven trading advices that amateurs should follow and how the pros get them right.
#1 - Distractions
The first thing We have seen with very many amateurs is distractions. Quite often, you will meet a trader with so many browsers open. They will often be in Facebook, Twitter, or Instagram while still trading (and they are not open to look for fresh news).
Others will have their favorite blogs open so they can read and comment on the latest stories. Others will have loud music in the background (but this is not necessarily a bad thing, it depends on how we use it).
On the other hand, pros are different. They understand that trading is a profession just like any other. When trading, you will find them focusing on charts and the sources of trading information.
If they are on social media, they will be in places where they can get trading news to help them strategize. They will only have relevant television channels (or live trading, like TraderTv) open and no music in the background. In addition, if they have a home office, the door during a trading session will always remain closed.
» Related: How to Setup Your Day Trading Desk and Room
#2 - Time Wasting
Amateur traders waste a lot of time which could be saved if measures are put in place. For instance, an amateur will spend hours in charts before making a trading decision. They will analyze charts, scan the news, and do other things before opening the trade. They also spend a lot of time looking at different assets.
A professional trader on the other hand has a trading plan at hand. The plan tells him what to do and when to do it. It tells him the conditions that should be met before a trade is open.
If the conditions are met, the trader will then open a trade, set the stop losses and the take profit and leave the trading room.
» Related: Time Management Tips for Traders
#3 - Panic When Money is Lost
No one loves losses. Losses are very bad such that many people have committed suicide or gotten depression after making losses. However, as a trader, you will often make losses.
Amateur traders will panic and get depressed after making losses. On the other hand, a pro trader will always take losses in a positive manner.
This is because they calculate the maximum amount of money that they can lose in a trade, and then places a stop loss.
The stop less enables them to lose only a small portion of their funds. They also put in place a take profit which helps them stop the trade once a certain level is reached.
» Related: Don't give up after a loss! Here are the Top Reasons
#4 - Overconfidence
Most amateur traders are overconfident after making a few profits. They make these profits despite the fact that they don’t know much about trading. They open trades, (mostly with a big lot size) and then make a huge profit and then assume that they are pro traders.
Professionals on the other hand understand that trading is not the same as gambling. They understand that it is possible to lose the entire amount of money within minutes. Therefore, they take trading slow and know that overconfidence can ruin their trading career.
#5 - Introspection
An amateur trader will open and close trades without doing any introspection. They don’t take time to record their trades and reflect after the close of the trading day.
Pro traders on the other hand are more coordinated. They take time to record in a trading journal the reason for buying or selling an instrument. By doing this, they are able to identify mistakes and opportunities in their trading. In addition, after a trading day, they take time to reflect about their trading.
If there made losses during the day, they reflect and identify their mistakes.
#6 Risk management
Risk management is the most important concept in day trading. It involves identifying potential risks, mitigating them, and then maximizing returns. Sadly, many beginners don’t have a good understanding about how to reduce their potential risks.
The first part where they go wrong is to ignore the tab on leverage. For starters, leverage refers to a loan that a broker gives you in order to help you maximize your returns. A higher leverage will expose you to more profits but more risks. Therefore, they start their trading journey by selecting a high leverage.
Too many trades
Another way that they go wrong is to open too many trades per day. Ideally, any trade that you open exposes you to risk since you can lose money. Therefore, experienced traders solve this proble, by opening just a few well-analyzed trades per day.
Further, most newbies forget to protect their trades using a stop-loss and a take-profit. These tools will automatically stop your trades when they get to certain levels. They can also help you in case of a major short-term swing. Therefore, we recommend that you always protect your trades.
Another risky thing that many newbies do is to rely on other peoples’ analysis. For example, a trader will hear an analyst turn bullish on a stock and then buy it. This is one of the easiest ways of losing money.
#7 Money management
There is a difference between risk management and money management. The latter deals with how you have positioned your finances.
For example, one of the biggest mistakes that newbies do is to use their savings or medical or academic funds to trade. This is wrong because of how risky the market is. Instead, you should only trade with funds that you don’t need and those that you can afford to lose.
There are many ways in which professional traders and newbies differ. We have barely scratched the surface. For example, experts understand the benefits of prop trading instead of being a retail trader. They also understand how to use direct market access data and how to use the arbitrage strategy to hedge risks.
External useful resources
- 7 Trading Mistakes the Amateur Traders make - Nifty Trading Academy