Many newbies and also experienced traders think that studying enough trading books or attending one or two training seminars is a recipe for success in the market.
However, this is far from being true. You don’t have to be a beginner to make mistakes trading in the financial markets. A lot of advanced players make them too, especially when they’re distracted, not properly organizes, or even overconfident. Still, there is a difference between the mistakes that novice and advance traders make. Beginners often set their trading strategies on wrong the criteria, or don’t have a strategy at all! They are also more likely to giving in to emotions, doing more damage than good and ending up in poor trading decisions.
First step to becoming a better trader is identifying what mistakes you are making and finding a way to correct them. The key for many professional traders has been taking the time and understanding the mistakes they have made and seeking to better themselves.
Here is a list of 5 of the most common mistakes made by beginner stock traders.
Unreasonable Expectations Most new traders enter the online trading market with high profit expectations, believing they’ll get rich in no time. This does simply not happen. Yes, there are people who are very successful in trading Forex, but the majority lose their money. Anyway, success takes hard work and a lot of time. It takes years in most cases to build up experience and turn Forex trading into a profitable full-time job.
Get a Grip on your Emotions In trading, your worst enemy is yourself. A lot of people cannot control their emotions when a trade is going in the ‘wrong’ direction and often make quick decisions to close it and open a new one. This can wipe out your entire trading capital within minutes. Market orders are generally not a good idea for beginner traders who do not quite understand how the market works yet and what indicators to base their trading strategy on. Sometimes, all you need to do is wait a trade out even if it doesn’t go in the direction you thought it would and this requires a lot of patience and self-control.
Incompetence to use a stop-loss and a take-profit If you place a market order and leave it open to ride, you can risk your entire trading account. Learn to use your tools. Advanced traders will not leave an open trade, but put instead a stop-loss on every long position. Thus, a BUY order will automatically close if the price falls below the level you indicate. You can limit and control the amount of losses for each separate order, very useful since you cannot monitor the market movement all the time. A take-profit order works the same way, securing profit at a certain level and then your position will be closed.
Trading based on news Many new traders believe that trading right after some major economic or political news come out, they will be able to predict the behavior of a certain currency or commodity. While staying informed and following central banks reports, interest rates emissions, new political alliances and many other financial and political events can be of great use, you really cannot rely your strategy solely on it.
Overtrading This can occur in several ways: when you keep too many open positions, thus setting excessive leverage and holding losses for too long. It is really not a bad idea to try to diversify your trades and maximize chances of profit, but when you open too many positions you might not be able to respond to all events and follow all your trades properly and in due time. New traders are likely to suffer greater losses due to lack of experience to see when a trend is not reversing. You need to learn to take loss and close an order. Always bear in mind that leverage is a double-edged sword: you can improve your returns from good profitable trades, but you can also increase your losses on the unsuccessful ones.
There are probably many other mistakes beginner traders make when starting in this online trading world, these are the common ones. Knowledge, training and self-control can be the key to successful performance, you need to try. Use this information as a
base line to identify potential mistakes and make smart decisions to become a successful trader.