Which is smart? Learning from your mistakes or from the mistakes of others?
Obviously, it is the latter because it comes free. Further, it makes you learn aplenty in a short period of time. So, it saves time, steepens your learning curve and provides better results too.
It’s the general case but in trading, you get an even better incentive — you cut your losses. You don’t have to put your hard-earned bucks into a trial and error test and learn it the hard way.
When you can develop your trading skill the easy way, why not take it?
So, here are the common mistakes every new trader does. And you don’t have to do it. Because you read it here.
Mistake #1 — Diving without due preparation
Which is smart – Learning to swim in a pool or in the sea? It’s the pool.
In this analogy, the swimming pool is the demo account and the sea is the real account.
Trading in a demo account can seem childish. You may even feel lame that you’re putting in your hours for nothing.
Some even argue that trading in a demo account doesn’t bring emotions into play and so a trader will not be prepared for the ordeals out in the world.
But, here’s the thing: The demo account doesn’t emulate the experiences of a real account. Rather, it gives a feel of the things out there in the real. It makes you understand the correlation between currency pairs, the best time to trade and renders you a forum to test your baby strategy. If the strategy gives you a decent reward, it piles up your confidence. When you’re new to trading and you see prices sway from your entry, confidence matters most. You need to know when to hold your guns and when to let go. And demo account can aptly do so for you.
Remember, its a pool and it makes you learn basic swimming though it might not prepare you for the currents of the ocean. As a wannabe swimmer (trader), you got to take it.
Mistake #2 — Overtrading
When one is good, why not make two out of it or even three out of the same? It seems logical, right?
Nay, wrong. Trading doesn’t work that way.
The market doesn’t produce profitable trade setups at your will.
If you’re finding aplenty, then it means you’re not following the due diligence.
Before you realize this mistake, your trading capital would be halved.
What you lose in a matter of minutes, take months or even years to build.
So, you need to cherry-pick the trades wisely.
Overcoming overtrading syndrome
The key reason traders overtrade is that they either don’t have the patience or understand its importance. The purview of patience is not limited to the formation of the trade setup alone.
A quintessential trader has patience in all aspects of trading — the formation of trade setups, the long haul to book profits, waiting years to build his/her trade account.
And one can’t acquire prototypical patient characteristics over-night just for trading.
It requires a change in your personality. Take up a hobby, say hunting or fishing. Because like trade setups, preys are a hard catch too. You have to wait for hours to catch it. And these kinds of hobbies slowly change you as a person. It instills patience in your character and makes you a better trader.
Mistake #3 — Avenging for Revenge
It is the one mistake that every trader know that they shouldn’t do, yet no one can help it but do.
The market can be cruel at times. A winning position can turn into a lose suddenly or you can have a series of losses for reasons you can’t comprehend.
It unleashes a vicious chain of emotions and you feel the urge to get back what you lost immediately.
But the more you try, the more lose. It is because the trades are not backed by logic or strategy rather emotion and desperation.
And when you realize the mistake, it may be too late.
So, when you have a streak of loses, take a pause, clear up your mind, cool-off and then get back to trading.
A break from trading helps you in many ways. It gives a fair perspective of what went wrong for you. So never hesitate to take a break. After all, it’s the only thing that you can control in the market. Here are some useful tips to take out revenge trading from your system.
Mistake #4 — Trading without stop loss
This notion is getting fancy off late. Many mentors take a leaf out of pros’ handbook and are recommending it. But it is not going to work for you.
Because the resources available at their (pros) disposal and at your end are quite different.
They do have a team of fundamental experts and a hefty load of cash.
And so they trade without a stop loss but with solid fundamental backing. Further, they deploy various hedging strategies to counter short-term loss, which is not privy to you.
Being a retail trader, it is better to keep things simple. When a technical structure breaks, it is best to exit positions.
It minimizes your loss and lets you see another day.
Further, when you’re new to trading, you’re bound to mistakes. So, eke out every penny and stretch out your learning process.
Mistake #5 — Trading with a small stop loss
Stop loss is not the value that you deem you can afford. It is the value the technical structure demands.
Traders often make this mistake in an effort to curb the losses. But it only increases the number of losing traders and in turn decrease your accuracy level and confidence.
And so, it is the primary reason behind the advice of trading mentors to dodge the stop loss.
If you feel, you can’t afford a wide stop, then reduce your lot size.
Fix the dollar value you could afford and then calculate the lot size accordingly.
Sounds complicated and tedious? We have the perfect tool to carry out this complicated task in an easy way. If you want to mimic the pros style of trading, then do it the right way.
Mistake # 6 — Betting on a news
No one can resist the temptation of making quick bucks. And the news trading ideally provides it so. But you should resist it. Why?
Because it is not the news that matters most.
It is the aftermath reaction of the traders and the sentiment of the community that takes the center stage.
For instance, consider the FOMC statement released on July 30, 2019. The committee made a rate cut of 25 bps which by convention and wisdom should have made the gold prices to soar. Many retail traders had a humongous number of long bets during that day. But the market took them as casualty eventually. Contrary to popular belief, it plunged 300 pips and stumped everyone.
Well, the trading community usually has its own explanation like, “It wasn’t par or up to the expectations.” The reasons don’t matter because you would get a margin call from your broker before you can dial up ‘why’.
So news betting is more of a gamble than trading. Because you can’t interpret what others have in mind.
Therefore it is better to stick to the charts.
Mistake #7 — Trading without a plan
This is the one trading mistake that instigates and galvanizes the above all or even thousands more.
When you don’t have a plan, you tend to succumb to the moments. And trading presents you those moments often.
Further, the plan dictates the right and wrong for you.
It’s all about the discipline in trading the plan that’s going to bring success to you.
So, pick a strategy. Here are 3 Powerful yet Untapped Best Forex Trading Strategies.
Then create a risk-reward ratio and stick to it.
There is no doubt that the market is a paradox. But you have to keep things simple in order to succeed.
And there is always be pep talks from experts to try contemporary techniques.
You can learn it, but don’t try to act on it, unless you garner the experience. Further, when a strategy works for you, use it as long as it becomes obsolete.