Trading seems like an easy and straightforward path towards bigger profits. Prices of every instrument will either go higher or lower. You only have to choose the right instrument and wait for the prices to increase. When this happens, you will earn a fortune. If this is all you have in mind when you think about trading, then you need to think again.
Trading is not as simple as people think it is. Even top-rated traders make mistakes and bear losses. You need to be active and analyze the market to become a successful trader. Keep in mind that there are plenty of surprises in the trading world, especially if you have big ambitions but don’t put in the effort. So, you need to follow appropriate tactics and strategies to understand the rules. Of course, trading isn’t all about what you should do: it’s also about what you shouldn’t. Here are some of the trading mistakes many new traders tend to make. Be sure that you avoid them all:
1. Guessing Your Next Move
Trading without preparation won’t get you anywhere in the industry. If you aim to earn a profit through trading, you need to understand how the market works. Also, when investing in an instrument, you should learn about its potential in the market. Making an effort to learn while investing in an instrument will help you make the most out of your decisions. Trading without making an effort is like walking into a casino, spending your money on the roulette table, and waiting for your luck to shine. While it’s true that luck does matter in the trading industry, you can make better decisions when you are completely aware of the market. The trading industry does involve the elements of volatility and unpredictability, but you can strategize your next move once you learn about the industry.
2. Emotional Trading
While trading, many people feel really confident and excited when they win multiple trades in a row. They feel as if they mastered the trading profession and cannot make any mistakes. While a boost of confidence can help you have faith in your abilities, attaching your emotions to it can cause things to go awry. When your emotions grab you after a sequence of profitable trades, chances are that you’ll start feeling lucky, which can push you to make impulsive decisions. After all, your hard-earned money is at stake. It is okay to feel confident about your expertise and decisions. But, do not make your trading decisions with emotions. Instead, try to keep your emotions down when you are up for a trade and look into the situation objectively. Make a decision after a thorough analysis of the facts rather than your gut feelings. Create a proper system and avoid getting too emotional while investing your money.
3. Over Leveraging
Leverage is the main attraction for many traders, as it enables you to trade in bigger positions with smaller investments. As a new trader, you may think that leverage will only amplify your profits, but in reality, it is a two-edged sword. It not only expands your winnings but also influences your losses in the same way. So, if your trades with high leverages turn against you, you’ll end up at a loss. Therefore, you should start with low leverage and gradually increase your leverage trading in a higher position when you identify the type of trading that suits you. However, this may take plenty of time. Clearly, you should learn to walk before you start running.
4. Trading Without a Plan
If you don’t have a plan, you are already at a great loss. Trading without a plan increases your risk of losses. Your first step should be to develop a trading plan. Regardless of your reason behind trading, you need to support your decisions with a proper plan. A trading plan will help you identify the risks and challenges beforehand. Also, you can anticipate the results of your decisions and head towards a clear path. When planning, think about the market conditions and how you can benefit from certain situations. Consider how much money and time you will devote to your trades, how you will gather knowledge, and the type of trades you will pursue. When you have a proper plan, you will feel confident about your decisions.
5. Revenge Trading
After losing a trade or series of trades, do you feel like getting back into the market and prove that you are a winner? You may feel like winning the next trades to even out the losses? If you feel like this, you are revenge trading. You’re acting with your emotions instead of making a sound decision. This type of behavior is normal among new traders but it usually results in more pain. Trading is all about learning from your experiences and making informed decisions. If emotions make their way into your decisions, you face a higher risk of losses. So, instead of making the mistake of emotional decisions, objectively evaluate if there is good potential in trading further or not. If you are on a losing streak, you need to step back and analyze where you went wrong.
6. Not Maintaining a Trade Journal
If you want to become a successful trader, you need to keep a record of all your trades. Keep a journal and jot down your trades by categorizing them as good or bad trades. Many traders do not understand the importance of maintaining a journal. This is a big mistake on their part. You need to understand the objective reality of the trading industry and learn from your previous transactions. When you have a record of all your trades, you can go back to your journal and observe the strategies you have been using for successful trades. A trading journal should include the date and time of trading, screenshots of the charts, position size, trading instrument, and a reason as to why you find that trade an opportunity.
The trading industry isn’t simple, but it’s certainly interesting. You need some time to understand what will work for you. Make your trading journey smoother by avoiding these common mistakes. Remember, your goal is to analyze the market and get maximum information to support your decisions. When you avoid these mistakes, you will notice a positive change in your trading behavior. Also, consider your mistakes as lessons and opportunities to become a successful trader.