WANT TO BECOME A GREAT TRADER? AVOID THESE 12 TRADING MISTAKES
HOLDING MULTIPLE TRADES AND OVER-TRADING
This mistake is typical of 100% of beginning traders and 90% of the rest traders. It is therefore little surprise that 90% of forex traders are in the category of losers bearing the fact that they are all prone to making this mistake. It will interest you to know that if you are the type of trader that have more than one trade running at a time, then you are probably guilty of over-trading. There is arguably no justification for holding more than one trading position at a time.
The truth is that most traders find it hard to avoid the temptation of trading all the time, hence they come up with unfounded reasons as to why they do so, or even force trading signals that are not present. To be candid with you, you will only find yourself at the receiving end of the markets by over-trading; making money consistently in the markets will elude you if this error is not taken care of by controlling your urge to be in a trade all the time.
In order to control the urge of over-trading, it is best for you to approach trading with the right mindset, and be realistic about what you can actually make from trading. If you can adopt the right mentality to know that trading less is the only way to make more money in the markets, then you will find more reasons to avoid trading, and few reasons to trade; this is how professional traders make money consistently.
SPENDING LONG HOURS THINKING ABOUT TRADING AND WATCHING THE CHARTS
Just like the foregoing point on over-trading, another mistake traders make generally is to dwell too much or think too much about trading. Traders tend to make the mistake of staying glued to their computer screen watching the charts, even though there is no clear trading opportunity or signal for a trade to be executed. This ends up making them to wrongly enter a trade which they would not have considered if they had based their trading decision on the dictate of their trading plan.
Do you find yourself thinking all the time about trades you have already entered, or trades you are thinking of entering? If you’re thus minded, then your attitude can pass for an act of over-trading and you end up losing money this way.
As a trader, you should understand that spending less time watching the charts will ultimately do your trading a world of good. If your trading decision is based on what your trading plan tells you, then those planned time spent away from the markets becomes part of the whole plan and process. You will have only your own self to blame by not sticking to your plan and then lose money in the process. The bottom line is therefore to stay disciplined by sticking to your trading plan which non-compliance to will result in losing money.
ANALYZING THE MARKET AND TRADING FROM SHORT TIME-FRAME CHARTS
Another grave mistake that beginning or new traders are trapped in is ‘day-trading’, which is one of the first enticing trade terminology they learn about, without them having any profound knowledge on how this can do harm to their trading. This inevitably makes them to buy into the idea of trading from smaller time frames like the 1 minute or 5 minute charts, and this can only lead to over-trading, gambling and trading addiction.
Short time frame charts are of little significance when compared to their higher time frame counterparts; reason being that the latter reflects more data and thus carries more weight than the short time frame charts. For instance, a daily chart bar is by far more important that a 1 minute chart bar; trading higher time frames require patience, but is guaranteed to give more accurate trade signals and won’t get you stressed up; considering this trade-off, you just can’t settle for less. Take daily time frame chart for instance, after setting up a trade, you can simply walk away for a period of 24 hours or more. This affords you the benefit of trading like a nomad, whilst also enjoying your dream lifestyle as a trader.
TRADING LIVE ACCOUNT WITHOUT DEMO-TRADING
A sure way through which beginning traders lose their money is by attempting to trade with real money even before they have tried their strategy on a demo account; in this case, a number of typical occurrences arise; a trader may be unfamiliar with his trading platform and how it works, and as a result can make costly mistake like risking more money than they intended to, or fail to properly enter a stop loss order, which of course can result in loss of money.
When a trader fails to test his strategy on a demo account, i.e. in live market conditions, what will happen is that the trader will not be certain about the effectiveness of that strategy or his ability to trade it. It will appear absurd for anyone to risk his hard-earned money in the markets without a demo trading experience; this will be akin to what happens when gamblers visit Las Vegas and gamble away all their money.
The goal of anyone aspiring to become a successful trader should therefore be to test his strategy and trading ability on a platform with demo trading account before embarking on live trading; this way, you will become very conversant with the markets and your trading system without putting real money on the line.
BEING DISTRACTED BY RELIANCE ON TRADING NEWS
Relying on news (e.g., economic news) to make trading decision can constitute a distraction which if you’re not careful, you may fall into that trap and only realize it after all your money has gone down the drain.
If you are the kind of trader that is searching for reasons to justify why your trade should work out, then you won’t lack information on such on the internet; there are many opinions out there at your disposal, either for or against the line of argument you want to assume, and opinions on trading is not left out. Another mistake traders make is to go on internet in search of trading news release to give them a clue on which direction the market is headed next, and based on this opinion they enter a trade. This act of trading the news can prove to be dangerous because trading or economic news releases are often already priced into the market; what it means is that this news has already reflected in the price charts because the big institutional players have earlier acted on it since they believe that is what will take place.
When the news is eventually out, it will lead to very high volatility situation that will see price in a quick wild and wide move in one direction, and quickly returns to the opposite direction; this spikes in movement will result in many traders being whipsawed out of their trade and makes them lose money. Thus, trading the news is dangerous and not healthy especially for uneducated traders; hence you should avoid trading solely on news.
When you trade obvious price action setup, it will eliminate the uncertainty of trying to trade the news. As we have seen above, news and every factor that moves the market is a reflection of what is seen on the price charts, so learning to trade the price action also implies trading the news without worrying about trying to do any news analysis.
FAILING TO UNDERSTAND THAT EVERY TRADE HAS A RANDOM EXPECTATION
Traders think amiss when they fail to realize that every single trade they execute has got about an equal chance of turning out either as a win or a loss. However, this does not mean that you cannot have a strategy with a high percentage winning rate because such strategies do exist, but one thing with trading is that if you take any given series of trades, there is a random occurrence of wins and losses, and this means that you can never be certain about the sequence of wins and losses that can occur in a given series of trades. If therefore your expectation is that your strategy can produce winning trades 60% of the time, then you should expect such outcome after a large enough sample size of trades.
Let’s take the case study of flipping a coin; you can expect a possibility of getting either heads or tails on a percentage ratio of 50% - 50% respectively, but within that probability, you can record a ten straight heads in a row scenario, and this situation can be perplexing if you fail to understand that in order to end up with 50% heads, you are required to flip the coin a lot of times.
In trading, similar possibilities as mentioned above can play out; it is possible for you to have 10 straight losses within a 100 sample size of trades for instance, but subsequently you could end up still winning 60% of the time after taking the 100 trades. This reality has massive implications, and it implies that if you don’t stick to your trading plan when you record losing streaks like this, you could get freaked out and likely over-trade; this takes you far off course that you could end up blowing your trading account.
Always bear it in mind that the outcome of any single trade is insignificant; what counts is the ultimate result of a large enough sample size of trades, and this is what will suggest the profitability and effectiveness of your trading edge and your trading ability. Effective money management also comes in here, as this will ensure that you remain in the market long enough to see your trading edge play out over a large enough series of trades.
BEING OVERWHELMED WITH DESPERATION OR URGENCY TO TRADE
Another big mistake made by traders is to be in a situation where they have a sense of desperation or urgency around their trading. This happens when traders take trading as their sole income earner, thus putting all their eggs in one basket. This decision can mount too much pressure on a trader, since trading is inherently risky and difficult, and demands such mental strength which most people lack and are not interested in developing. It is therefore not in the best interest of a trader to not have any other thing doing for a living besides trading, even if you become so good a trader that you’re making money consistently. Therefore it is best to try having a side job or hustle so as to trade under less pressure which is good for forex trading.
Putting too much pressure on yourself, is one sure way to fail in the markets because trading success is only possible by maintaining a calm and relaxed disposition, which makes you to stay emotionally composed no matter the outcome of your trades, whether win or lose. This may seem to be absurd, but the truth is that when you are too emotionally attached to trading, failure will ultimately become inevitable.
WAFFLE TOO MUCH, NOT TRUSTING YOUR DECISIONS AND STICKING TO THEM
After placing a trade, there is need for you to allow it to play out without your interference, unless there is a massive shift in price movement on the very time frame you are trading from; we cannot overemphasize the importance of following this rule because the success or failure in your trading career can depend on your approach in this regard. Often times, after spending time on market analysis to find trade signals/setup and placing a trade, most traders get uneasy and can’t hold back the temptation to return and have a look at their open trade, hoping to see a price-move in their favor, and when the reverse is the case, they get freaked out. You may not like to hear this, but it is normal to have trades go in the negative direction, or even have losing trades, but freaking out when this happens is a sure way to blow out your account.
This point is also related to the preceding one, where we discussed that trades have random outcomes, and that the outcome of any one trade is not a yard-stick to judge the effectiveness of a trading strategy, but that of a large series of trades. Therefore it is wrong to meddle in any trade, but to allow them to play out; the thinking should be left to the market to do, so that you can have stress-free and profitable trading.
TOO MUCH FOCUS ON MONEY AND REWARD INSTEAD OF THE PROCESS
According to what was discussed at the end of the previous point, traders need to avoid interfering with their trades, but to allow the PROCESS (TRADING PLAN) take over. Traders wrongly prioritize consideration of money and rewards instead of focusing on the things that really matter: the trading edge, trading it properly, trusting the strategy, risk management, ideal position sizing, set your trade and forget it, etc. You should rather learn first to become a good trader by learning and following these processes; money and rewards is what naturally follows when all these are in place, not because of your worrying and thinking.
MEDDLE WITH LIVE TRADES (SET AND FORGET!)
The easiest way for traders to fail in the markets is to start interfering with their trades after entering them. We can say this over and over again; being profitable in the market will prove elusive if a trader continues to make this mistake; if the urge for you to do this proves too difficult for you to deal with, then you are not cut-out for trading; period!
Your trading career can only take off if you learn to do nothing for about 90% of the time after you have entered a trade, yet most traders tend to continue with this erroneous act that is not healthy for their trading. As have been mentioned before, professional traders do nothing 90% of the time while trading because they leave the job to their trading strategy and plan, and you should take a cue from them; one thing you can’t afford to ignore is to learn to not meddle with your trade after they are live.
CHASE A MISSED SIGNAL, AND ENTERING LATE AT A BAD PRICE
Another temptation traders fall into is to enter a trade late at a bad price. This happens when, for reasons best known to the trader, he failed to seize the opportunity of a setup that occurred, but discovered later that price actually moved in his favor; upon seeing that he has missed the train, he decided to jump in by placing a trade at a bad price not supported by his trading plan. This is a wrong way to trade because such act is emotionally triggered and against what is in your trading plan. You should instead avoid the rush and wait for another trading opportunity to come; being emotional will only occasion loss of money in the markets.
NOT PRE-DETERMINING YOUR PER-TRADE RISK ALLOWANCE
Another costly mistake made by traders is failing to define their per-trade risk allowance. This implies an amount of money you can risk on a trade without it negatively affecting your financial life, and this also means that if you eventually lose such amount, you won’t bother or give it a serious thought. Taking this fact into consideration is very important before you ever think of trading, since it is an indispensable part of your trading plan.
CONCLUSION
In your journey towards becoming a successful forex trader, you are bound to make mistakes along the way, and this proves to be true especially with beginning traders, but what sets the winners and the losers apart, lies in their ability to learn from those mistakes and avoid them in future. To become a consistently profitable trader does not mean that you will be perfect all the way, but it only happens when you consciously learn from past mistakes and try to not repeat them; on the other hand, if you go on repeating the same mistakes over and over, your trading account will suffer; so your goal as a trader is to try at all cost to prevent this from happening.
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