Common Trading Mistakes

A novice trader inevitably faces a number of mistakes that will cost him dearly - several deposits will fly away with a whistle, and with them nerve cells. The price is too high, don't you think?

So, let's move on to the typical psycho-emotional and technical mistakes of traders and try to save money and nerve cells.

First of all, it is worth understanding and remembering that the financial market is not a place for trading, but a whole system of economic relations that arose in the process of exchanging various goods and resources.

Table of Content

1. Technical Analysis Mistakes
2. Fundamental Mistakes
3. Method of Analysis
4. Psycho-emotional Mistakes
5. Top 10 Trading Mistakes
6. Bottom Line on Common Trading Mistakes

KEY TAKEAWAYS

• Holding a trading position without limiting losses is the same as taking part in racing cars, without brakes!
• Everyone, even the most novice traders know: you need to write and have your own trading system
• Regarding trading, our emotions are divided into the main components that directly affect the result of trading.

Technical Analysis Mistakes

One of the most important components of all trading in general is the observance of certain norms of technical analysis. If we have “perfectly” mastered the discipline to follow a set of rules of a fundamental nature, then there will be no benefit at all if we ignore information about the following mistakes:

Trading without Stop Loss

Holding a trading position without limiting losses is the same as taking part in racing cars, without brakes!

Well, first of all, no one ever knows where the price will go at any given time. Secondly, what is even more so, no one ever knows how many points it will get! If we entered into a trade, and, as often happens with inexperienced traders, the price went against us, then, of course, we begin to lose our hard-earned savings.

And it’s good if, nevertheless, the price dynamics turned around and didn’t make us a huge drawdown in the account. But such a development of events is extremely rare. Often everything happens according to Murphy's law. That is, no one has yet repealed the law of “meanness” in the market. And as a rule, the rate of one or another financial instrument leaves us up to the Margin Call.

So, if we had placed a stop order much earlier, then we would still have the opportunity to recoup. We would still be afloat. But we realize this only when there is no lot left - this is how human physiology works. Therefore, for yourself, once and for all, it is worth understanding the following concept:

Trading Against the Trend

It's not recommended to open positions against the main trend. Why, you ask? Well, you will discover the answer to this question for yourself if you plunge headlong into the theory of probability, which is quite voluminous in terms of information.

We will only tell you that when entering a position along the main trend, it will most likely help you to be in the right direction for you. Even if the price went against you immediately after entering the trade. After all, running into a reversal of the main, that is, a more global trend, is quite problematic. That is, catching an undesirable reversal for us on a higher timeframe happens much less frequently than on a working (smaller) timeframe.

But even before such developments, it does not mean that you need to enter into a position thoughtlessly. That is just in the direction, hoping that it will still roll. Remember; that the main task of a trader is to buy low - sell high!

Fundamental Mistakes

Everyone, even the most novice traders know: you need to write and have your own trading system! But, alas, despite such banal knowledge, many beginners rely on the fact that the system is useless to them. Referring to the fact that the most well-thought-out trading strategy will not allow trading with the desired frequency of transactions.

That is, beginners believe that a detailed trading system, with its strict requirements for entry, exit and maintenance points of positions, simply will not give a single adequate signal to enter a position. This is how inexperienced and novice traders think. In fact, there is a profound misunderstanding here.

The fact is that in the conditions of our trading system, we can prescribe just a couple of requirements for entering or exiting a position. But while following it, we will still partly violate the conditions prescribed by us! And the point here is not only in the variety of market situations and our psycho-emotional state, but also in these two circumstances, taken together in one moment of time!

Therefore, do not worry about the volume of the conditions of your trading system. Quite the contrary - an excess of requirements in it will occasionally, no, no, and even violate them. So to speak, to give vent to feelings. At the same time, how to stock up on prescriptions so that you can train your own discipline. Plus, at the initial stage of a trader's career, such "rash" actions will allow a novice trader to collect some, his own statistics on how not to do it!

Of course, if needed, consistently adjust the trading strategy. It is highly recommended to approach this process slowly, selectively, relying on long-term statistical data of your equity. I think it is also understandable and, at the same time, convincing that a trading system is a must have in your arsenal!

Method of Analysis

Beginning traders often rely on the Moving Average indicator and the RSI indicator.

After some time, they will already realize that something is not clear here. That is, the indicators do not work, as the super successful coach promised us. Our trading account is gradually sinking, and then we decide to switch to another method of analysis.

On one of the trading forums, a trader learns about such a wonderful and promising method of analysis as a footprint. "Oh, that's definitely mine!" Trader thinks. And he begins to study every day and try to apply this miraculous method of analysis in trading. But over time, he realizes again that the equity is slowly sinking…

“Price Action, I would even recommend this method of analysis to a friend!” But overnight, he again notices a drawdown in the balance.

In fact, only gamblers begin to learn trading this way. In such a development of events, the reason for failure is simple: It is impossible to trade profitably in the long term, while constantly applying different methods of analysis in trading!

Psycho-emotional Mistakes

Regarding trading, our emotions are divided into the main components that directly affect the result of trading. It is also worth mentioning that emotions in trading exist both positive and negative. Let's take a look at the main emotions in a nutshell.

• Greed - This emotion is perhaps the worst enemy of the practicing trader. For an inexperienced market participant, greed can manifest itself in almost everyone. It looks like this: with a positive direction of the exchange rate of the asset being traded, the trader cannot take profit (close the position). Due to the fact that he is simply convinced that the price will continue to move in his direction, with a burning desire to increase his trading balance as much as possible. Although initially, he planned to close this positive position where he can no longer close it. The reason for this is greed.
• Fear and panic - One of the most harmful states of a trader. At the stages when fear and panic appear and the trader begins to realize his weakness and helplessness. With such emotions, the trader is completely at the mercy of the market. That is, when his mind is paralyzed by fear, he is no longer as sure of further success as, say, before the start of trading. Usually this state manifests itself with multiple negative transactions, which finally fetters the trader before opening a new transaction, with a maximum drawdown in the trading account balance. It is in such an emotional situation that the once self-confident trader begins to realize his ignorance of the market.
• Depression and sadness - Here the trader feels that he is finally defeated by the market. After the last negative position, and the irretrievable loss of funds, the beginner simply goes into the deepest depression. And it is at this stage that the further fate of the trader is determined.
• Hope and excitement - It is not surprising that after hope, at the first positive transactions, the trader gets excited to continue (not based on rational calculations). This is where the axiom of positive emotions creeps in with sad further consequences.
• Faith - It must be said that faith is quite similar to the state of hope. But still, if you understand in more detail the feeling of faith, you can track a tangible difference. At this stage, the trader not only hopes for a better trade, but also gets inspired for a long-term, prosperous outlook.
• Euphoria - The most dangerous. Often, such a feeling covers the trader after a series of successful transactions. At the peak of euphoria, the “future millionaire trader” completely ignores the risk. That is, speculations and investments turn into easy, quick and crazy profits.

It goes without saying that this all leads to a sad end result. And mind you, not only for the trading account but for the trader himself mental health. The state of a trader in euphoria, from making easy money in one of the most difficult areas of earning, very clearly describes the axiom of danger.

Top 10 Trading Mistakes

1. Trading plan

The first major mistake novice traders make is not having a system. Even if you trade like God, everything will not always turn out alright without a cheat sheet. Any person who wants to be successful must have a plan.

2. Trading at the Market Opening

In the first minutes of trading, the market usually fluctuates wildly or immediately flies sharply up or down. Experienced market participants sometimes try to use their knowledge to predict from the first minutes of the market movement where it is going to go next. But for a novice trader, this possibility is excluded - you will definitely be let down by emotions.

3. Haste to Take Profits

You bought a stock, it went up in price, after a couple of days you looked at how much money was earned - and happily closed the position. And this movement, as it will become clear later, was only the beginning of a powerful uptrend, so if you were not in a hurry, you could earn 10 times more.

Use take-profit orders only in exceptional cases - when a clear resistance level is visible. Usually, it is better to exit the market at a sliding stop-loss level.

4. Adding to a losing position

You bought shares and the price went down. And yet you stubbornly assert “it will grow anyway, I just hurried to open a position” - and are buying more. Yet the price goes further down, simply doubling your losses.

Note: you can only add to a profitable position.

5. Closing a profitable strategic position on the first day

If you are not trading intraday, then, having opened a somewhat serious position, do not close it on the first day under any circumstances. Even if the price has flown up very far, be patient, tomorrow it will be even higher.

6. Change of strategy during trading

It is thoughtless to change your strategy during trading and justify yourself for various reasons. In fact, you just couldn't follow your strategy and started to change it. It is necessary to improve the strategy only in terms of indicators in statistics and outside of working hours.

7. Trading during emotional imbalance

Trading at a time when a person is emotionally unstable due to conflicts at work, coping with his wife or something else is a short way to drain. Play only when you have a clear head and a good mood, and no obligations and debts hang over you.

8. Closing positions starting with the best

When you have several buys and the price starts to go down, you often instinctively try to take profits first and only then close the losing position (or leave it before the stop loss order is executed). This is a wrong tactic: if the entire market went down, then most likely those who behaved worse before that will most likely fall faster than others - and you have a loss on them; therefore, this position should be closed first. And stocks that have risen will most likely fall reluctantly now, and in the event of a market reversal, they will go up again - so do not rush to close a profitable position.

9. Trading on the principle of "bought forever"

You've been trading for a relatively short period of time, you bought a stock, and it suddenly went up with terrible force. Here you say to yourself “yeah, I caught the beginning of a multi-year uptrend” - and hang this position “forever”. But that's not the case: either you basically go for much longer evaluation periods, or you follow your standard rules with your usual short period. Rules that will force you to enter and exit the market several times even in the case of a really powerful trend movement.

10. Revenge

A typical distress for a beginner: a losing position has just been closed - and he again rushes into the market with excitement to avenge his loss. The result will only be a new loss - so do not return to the market after "catching a loss". Get some rest.

Bottom Line on Common Trading Mistakes

In conclusion, we would like to emphasize a very important detail regarding everything we have reviewed. To achieve the maximum result in a trading career, it is necessary to approach the solution of questions about trading mistakes in a complex way.

It is impossible to achieve a stable result for a long time; let's you have mastered the ideal risk and money management, but at the same time, completely ignore the discipline.

Just as it will not be possible to remain a consistently successful trader, with frequent changes in analysis and trading methods, but at the same time, constantly trade without Stop Loss. In this case, sooner or later you will simply be thrown out from the market. Without a stop order, with the wrong price direction, you will never have enough funds.

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