Whether you’ve never traded before, just starting your journey, or are experienced in the world of online trading, it’s important to learn from the past. The old saying “Learn from your mistakes” is applicable to all facets of life and trading is no exception. Traders should also try to learn from theirs or others (less costly) mistakes to avoid making them in the future. Regardless of how much you study or think you’re prepared, the unfortunate reality is that you’ll make a few mistakes along the way. We’re sharing some of the most common mistakes we see new traders making to help you minimize making them yourself in the future.
Not Cutting Your Losses
This is the biggest mistake traders make because it encompasses so many different aspects of successful trading- discipline, money management, preparation are all key to making sure you can cut your losses. How often have you held on to a trade hoping that it will “bounce” back? Our emotions skew our technical analysis into “seeing” what we want. When you get into a trade, know where you are willing to get out and stick to it. This applies to both taking profits AND cutting losses.
Cutting Gains Too Early
Just as common as not cutting your unprofitable trades is cutting your profitable trades too early. Often we have seen traders make several profitable trades but will let one or two losing trades wipe out all previous gains. This comes down to discipline and not letting your emotions take over your trading decisions. Follow a simple 2:1 risk to reward ratio for money management. For every dollar you’re willing to lose, aim to make $2 on that same trade. Therefore even, if you’re right 50% of the time, you’ll still end up profitable.
Overcomplicating Trading Strategies
The ironic part about trading is the more you learn, the easier it is to get lost. As a trader progresses to learn more about technical analysis, they’ll start to apply more complex indicators, oscillators, and strategies until one day they think they’ve discovered the holy grail. Often all that work ends up getting proven wrong because markets are never rational. Markets will move based on sentiment and no number of indicators or analysis will be right 100% of the time. It’s better to get back to basics. Look at simple chart patterns, keep a pulse on price action, and use fundamentals to determine the overall trend.
If you catch yourself making any of these mistakes, you’re certainly not the only one. Trading can be frustrating at times but realizing you’ve made one of the mistakes above and learning from it, is the first step towards becoming a better trader. Good luck!