16 Mistakes new traders make, their causes, and how to avoid them is written out of the need to answer some of the questions new traders ask and help them avoid making these mistakes themselves. These are inevitable positions that new traders find themselves; a lot of people seem to agree with this statement.
Others even go ahead to say that mistakes are the best way to learn and build a long lasting experience in the process and disciplines in trading. Whatever your view about mistake is, know that, this is something no human being can avoid totally. Even machines do make mistakes one way or the other.
But the truth is, when you learn from these mistakes, you will finally know what works and what doesn’t, but if you can avoid them, why make them in the first place?
The fact remains, some mistakes come with no minor consequence, others are better imagined that experience. In a traditional business or company settings, a minor mistake can be over looked and ignored, while a major one will pose a big problem.
But here in trading, no mistake is minor or major. We measure them in terms of financial consequences, as they tend to have effect on your trading capital or your psychology which in either case will leave you in a state that you don’t want to find yourself.
In trading, every decision and action is rewarded with a corresponding consequence which will either work for you or against you. The trading business is viewed by experts as a very risky industry and as such, should only be for certified and qualified professionals.
No action leaves you neutral here, with this in mind; take only those ones that will end up being in your best interest.
16 Common mistakes new traders make, their causes, and How to avoid them
There are dozens of mistakes that are common to new traders; they are like pattern they tend to follow until they are able to identify their left from their right when it comes to trading. Let’s quickly look at these common mistakes below:
Not Getting Relevant Knowledge About Trading Before Risking Their Money: The temptation to start trading live in order to take a cut from the national cake in the largest financial market is huge and this always blind new traders from learning the skills first and practicing on demo account.
The internet today is clustered with irrelevant information, people claiming to be gurus of what they are not. Using such irrelevant knowledge from these gurus will only amount to new traders losing their money to the market.
Cause Of This Mistake: The primary cause of not getting relevant knowledge about trading before risking their money is simply a quest to make money asap, this quest is been driven by so many variables that are peculiar to the new trader current financial situation.
How To Avoid Them: Avoiding this mistake is simply by knowing and accepting that the market has no regard for your current financial situation and as such, you should not be in a hurry to trade live, get the skills first, practice! Practice!! Practice!!! Knowledge produces confidence in the market, and this confidence helps you to make better decisions that are of your best interest.
Not Taking Time To Practice What They Have Been Taught: Again practice cannot be over emphasized here, just like Bruce Lee said: “I fear the man who practices one move 10,000 times than the man who practices 10,000 moves one time.” What this means for a trader is that, the more you practice a particular strategy, the better and more discipline you become and the more you master it. Nothing can ever replace practice in this business.
Cause Of This Mistake: The main cause of this mistake is when you have no detailed plan in place for practice. Practice as simple as it sound is very difficult to keep at it for a long period of time.
How to avoid them: For your practice to produce, you must have detailed plan of what to practice, goal of the practice, and pay close attention to the observations and results of your practice. This will form part of your experiences and help you avoid a lot of mistakes that will tend to occur again in future as history do repeat itself in trading.
Trading What They Think And Not What They See: New traders always have unrealistic expectations in the market, they are always thinking like they own or control the events in the market. This thinking pattern will only bring loses to your account. Your daily expectation of the market should not be outside what the market is currently showing you per time.
Cause Of This Mistake: Risking too much or not using a stop loss order will always put you in this condition.
How To Avoid Them: Trade what the market is showing you per time, and don’t hesitate to make the necessary adjustment as the market adjust. Be flexible to know when to call it a quit and when to take your wins and run away, so that you wouldn’t give it back to the market. Don’t always be emotional about your trades, treat them separately and risk what you can afford to lose.
Fighting The Market (Revenge Trading): This is perhaps one of the greatest mistakes new or struggling traders make. The truth be told, you can’t fight the market. It is way beyond you, why even try?
Cause Of This Mistake: Revenge trading happens when you try to recover immediately from a loss. At this moment you are trading emotionally and emotion trading will always result in you suffering more losses.
How To Avoid Them: To avoid this mistake, always close your charts and walk away after suffering huge loss. Instead of fighting the market, try to know why you have those losses in the first place and learn from it.
Not Being Serious With Trading As A Business: How serious you are in trading will reflect in your results. Make no mistake; your seriousness in trading will determine how successful you become at the long run.
Cause Of This Mistake: Lack of goals and plans for your trading business. You can’t expect to make consistent profit by just trading without plans and goals.
How To Avoid Them: Be very clear about what your expectations are in trading. Know what you want to achieve, what your goals are and how to get to them. Treat your trading as a business that it is. Show up very early and constantly learn and develop your trading skills.
Hoping After The Hottest Strategies Available Thinking It Will Solve Their Problem: I was a victim of this too, is amazing how new and struggling trader’s thinks that their problem lies in strategy. When strategy itself is a minor part of their overall success in trading.
Most traders believe that any strategy can work, but the problem lies in the person using the strategy, no wonder two traders can be using same strategy and one is making consistent profits while the other is having series of loses. Is the same principle even in other business, your psychology plays a very important role in your success and how you use your strategy.
Cause Of This Mistake: They believe that they need one holy grail, that golden strategy, that silver bullet that will solve all their problems in trading.
How To Avoid Them: You only need a handful of strategies to be successful in trading, the less the better. What you should do instead is work on your psychology and emotions. Practice and master few strategies. Back test your strategies and be very sure it has a win rate of minimum 40% then you’re good to go.
Looking For Signals From Other Traders: The truth remains, you can never be a great trader taking signals from people. The earlier you stop and sit down to learn how to give yourself those signals, the better for you.
Cause of this mistake: Wanting to make money asap.
How to avoid them: Again, go for the skill of trading, forget about the money. Don’t let your quest for making money lead you into making irrational decisions that will affect you negatively. Invests more time in developing yourself, it is the best investment with the best rewards.
Not taking their personality into account when building a trading strategy: This mistake is responsible for some strategy working for some persons and working against others. The way you trade is a direct reflection of your personality and such must be incorporated into your trading plans and strategies.
Cause of this mistake: Ignorance of this truth and not knowing how their personality affects their trading.
How to avoid them: Sit back and study yourself first to know how you operate. Do you prefer quick gains in short amount of time? Or you are the type that takes things slow and steady, these entire traits plays major role in determining your overall success in trading.
Gambling with their account by risking way to much: Anything outside proper risk management is an attitude of gambling in trading. The main work of a trader outside making profits is to preserve his account, without which he is not in business.
Cause of this mistake: The main cause of this is the appetite for more gains in a short period of time and the quest to make money asap.
How to avoid them: Regardless of what your reasons are, always risk what you can afford to lose should the trade go against you, and believe me it will from time to time. Whatever your risk is, keep it minimal so you don’t endanger your account.
Trading and making decisions emotionally: Emotions are part of you and as humans; you can’t do away with them. But you can do something better by checking them and making sure they are not against you in trading.
Cause of this mistake: Ignorance of the role emotions plays in your trading can cause this mistake. And also, when you know they exits but made no effort to counter them and use them to your advantages.
How to avoid them: You do this by knowing how your emotions works, and that they can sabotage your trading and only trade when you’re in the right frame of mind and emotions. Only make decisions when you’re sound mentally and don’t trade with a clustered mind.
Not believing in their ability to make money via trading: Your mind holds great ability to bring to pass what you strongly believe in. when you believe something so much, your sub-conscious mind goes into work to bring to pass that which you believe. Most times, this believes might be rooted subconsciously that it will be unknown to you.
Cause of this mistake: Your experiences in the past, especially your past financial investments. Any negative memory about trading or financial investment can lead to this mistake in trading.
How to avoid them: So the best thing to do is consciously believe that forex is your place to make good money from, a business that will pay your bills regardless your struggle now, things will work just fine for you in forex trading. have this kind of believe as you build your skills and become a profitable trader.
Blaming the market, brokers, and others for their failures: Life is all about choice, and I believe so much that whatever happens to us is a result of our different choices. When you lose money in trading, it means you have done something wrong and when you also make money in trading, it means you did something right.
Cause of this mistake: Losing money in the market and not learning from your mistakes that leads to the lose in the first place will cause you to have a negative mindset and end up pushing blames to others instead of yourself.
How to avoid them: Be responsible enough to accept your mistakes and learn from them. This will help you in the long term. Know that whatever outcome you get from the market is a product of your choice, and stick to making the ones that is of your best interest.
Not having a long term goal of what they want to achieve in trading: The worst thing that can happen to you in trading is not having a plan or goal as a trader, this will automatically place you on the side of the 90% that donates money to others in trading.
Cause of this mistake: Lack of proper planning or business mentality. Un-seriousness could also cause this. Ignorance of this can be the case of some people.
How to avoid them: Always have something you are aiming for in your trading business. It is what will motivate and keep you going. Absence of long term goal will never make you a great trader.
Not applying reward-risk and money management correctly: Your ultimate success in trading lies in your good reward to risk and money management. Trading is not a quick rich scheme, and that being said, you should treat it as such and be patient to build and grow your wealth gradually.
Cause of this mistake: Quick gain mentality and thinking that you can outsmart the market and become a millionaire in few days, weeks or even months.
How to avoid them: Take your time and build a solid reward to risk and money management. Don’t wait to lose so much money in the market before you start applying these life saving rules to your trading business.
No trading plan and no routine or discipline: A trader without a trading plan is like a business owner without a business plan. You will end up losing all your money in no distance time. The second thing here is discipline, having a plan and no discipline to use that plan is worthless. Discipline will help you to be profitable at the long run. All great and successful traders I know are discipline traders.
Cause of this mistake: Ignorance of the great benefit of trading plan and the discipline that makes it work.
How to avoid them: Create a trading plan today and be discipline enough to use it at all times. Keep doing this and soon with practice and experience, your trading will change for good.
Trading real money too soon or gambling it: The urge to jump into the market and start trading real money is often too much for most traders to withstand. However, the truth is that until you have mastered an effective forex trading strategy like price action trading, you really should not be trading real money.
By “mastering” the strategy, I mean you should be consistently successful with it on a demo account for a period of 3 to 6 months or more, prior to going live. However, you don’t want to use demo account trading as a crutch… trading a real account is different due to the real emotions involved, so just be sure you switch to real-money trading after you have achieved success on demo… don’t be afraid of trading real money, because eventually you will need to make the switch to real money trading.
Cause of this mistake: Again, we see the need to make money play its role in our trading and cause us to make mistakes.
How to avoid them: Forget about trading too soon; focus on the skill of trading first. Once you master this skill, the money you are looking for will naturally flow to you as a product of your skill and knowledge.
Hope this article help you to learn one or two about mistakes new traders make and hopefully avoid them and become a profitable and consistent trader. Remember to treat your trading as a business that it is. be patient with the market and yourself, always set realistic goals and be committed and discipline enough to follow them through.
To your super success in trading,
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