So you want to make a living as a trader? To begin, you’ll need to stay away from a number of common blunders that traders frequently make. You will make mistakes as you learn to trade, but the traders who start making money are the ones who LEARN from their mistakes and figure out how to avoid repeating them. In this lesson, I’ll go over the most common mistakes traders make and provide you with some simple solutions. Then it’s up to you to learn from them and make sure you don’t make the same mistakes again as you continue to analyses and trade the markets.
Being in Too Many Trades at Once and Over-Trading
This is perhaps the most classic mistake that 100 percent of beginners make and about 90 percent of the rest make. Also, it’s no surprise that about 90 percent of traders lose money over the long-run when about 90 percent of them are trading too much. Another interesting fact is that if you’re in multiple trades at once, you’re probably trading too much. There is no logical reason to be involved in more than one trade at any given time.
Most people simply cannot learn to resist the urge to trade all of the time, so they invent all kinds of reasons to trade or make up trading signals that aren’t actually there. The harsh reality is that unless you learn to control your emotions, you will never be happy. control yourself and stop over-trading, you are never going to make consistent money trading the markets.
Changing the way you think about trading and what “making money trading” actually entails is perhaps the quickest and easiest way to train yourself to stop over-trading. When you remember that less is more and that trading less over time will literally make you more money, you’ll start looking for reasons why a potential trade might not work out, rather than trying to find any excuse to enter the market (like most traders do).
Spending Too Much Time Thinking about Trading and Looking at Charts
Is generally just thinking about trading too much, similar to over-trading. Even when there are no obvious price action signals to trade, traders frequently make the mistake of spending too much time flipping through the charts. As a result, they end up entering a trade that they would not have taken if they were following their trading plan.
If you find yourself thinking about the markets and trading / trades you’re in almost all of the time, it’s safe to assume you’re overtrading and losing money as a result.
Incorporate planned time away from the charts into your trading strategy. Those regularly scheduled times you’re away from the charts will simply be “part of the plan,” “part of the process” if you stick to your trading plan. You are solely responsible if you begin to deviate from the process and lose money as a result. So, in the end, it comes down to how good you are at staying disciplined and sticking to a plan, which is why most people lose money in trading: they can’t stick to a plan and stay disciplined over time (consistently).
Trying to Make Trading Decisions From Short Time-Frame Charts
Day trading is one of the most common mistakes new traders make. Many people are familiar with the term “day trading” before learning much more about it. This leads them down the wrong path right from the get-go, starting them on a cycle of trading off of short-time frames like the 5 minute or 1 minute charts for example, and this leads to severe over-trading and gambling as well as trading addiction.
The importance of lower time frame charts is simply not as great as that of higher time frame charts. The reason for this is simple: a longer time frame reflects more data, so it carries more “weight” than a shorter time frame. A one-minute chart bar is far less important than a daily chart bar. as an example Higher time frames require more patience, but in exchange, you get more reliable trading signals and less stress, which is a pretty good trade off if you ask me! Trading daily charts allows you to simply set up a trade and walk away for 24 hours or more; this is how you can trade like a nomad and enjoy the lifestyle that trading can provide.
Trading With Real Money Before You Have Tested Yourself on a Demo Account
This error is like a death sentence for your money, but new traders make it all the time. Trading with real money without first testing your strategy on a demo account is a mistake. Traders are unfamiliar with the account and how it works, so they make silly mistakes like risking more than they thought they were or failing to enter a stop loss properly, among other things. Of course, they lose money as a result of this.
You also don’t know if your trading strategy or your ability to trade it will be effective because you haven’t tested it on a demo account (in live market conditions). It may seem insane that someone would risk their real, hard-earned money in the market with no prior experience on a demo account, but then again, people go to Las Vegas and gamble their money away, so it’s really just another form of that.
As someone who aspires to be a skilled and profitable trader, your mission is to TEST your strategy, as well as your ability to trade it, on a reputable demo trading platform BEFORE attempting to trade live! This will allow you to figure out the problem bugs’ with the platform that you may have and it also allows you to get a feel for the market and your trading method, without real money on the line.
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Getting Sucked Into The ‘Black Hole’ of News Distractions
In the trading world, the “black hole” of news distractions exists, and if you’re not careful, you’ll fall into it and never come out until all of your money is gone.
Traders end up “looking for reasons” why their trade should work out, and as we all know, you can find just about anything on the internet, as well as a plethora of opinions for and against any argument or position you want to take, including trading. Another thing that happens is that traders go online and begin “researching” economic and trading news, believing they have “figured out” what will happen next based on XY or Z economic news releases. Then they place a trade based on that belief, which is extremely risky. It’s risky because trading or economic news is frequently ALREADY PRICED INTO THE MARKET, that is, it’s already reflected in price action, and the “big boys” have already acted on what they believe will happen before the economic news is released.
When the news is finally released, the market will whipsaw, with price spikes in one direction followed by whipsaws in the opposite direction. This is obviously nearly impossible to trade, and most inexperienced traders lose money as a result. This is the primary reason why you should not rely solely on news in your trading.
Trying to trade the news can be confusing, so trading raw price action eliminates that. As previously stated, news and everything that affects a market is already reflected in the price action footprint on the chart. As a result, once you learn to read and trade price action, you’ll be able to read and trade news without having to analyses or read any of itself
Chasing a Signal You Missed – Entering Late at a Bad Price
It happens all the time: you see a trade setup you like but don’t enter it for a variety of reasons, then you return to the charts later and see price has taken off in your favour without you on board. It can be aggravating. However, you don’t want to enter the market after it has already taken off without you. All you have to do now is wait for the next opportunity and keep in mind that the market will be open again tomorrow. So, don’t be in a hurry to trade or to enter a trade that you missed because this is emotional thinking that will only lead to losses.
Meddling in Trades After They’re Live (set and forget!)
Do you want to continually screw up your trading and shoot yourself in the foot when it comes to your trades? Well, I’ve got a simple solution for you! Simply begin tinkering with your trades after you’ve entered them! Of course, I’m being sarcastic, but one of the most common mistakes traders make is meddling in their trades after they’ve entered them.
I would say that after you enter a trade, the most profitable course of action is to do nothing for the majority of the time! However, most traders, particularly beginners, do the exact opposite; they tinker with the majority of their trades, mess them up, and lose money as a result!
You MUST figure out how to ignore the never-ending temptation to mess around with your trades after they’re live if you hope to have a chance at making consistent profits over the long-run in the markets.