article 5 en

02 Nov 2021

5 мин

What mistakes do traders make and how to avoid them

Financial markets attract thousands of newcomers every day who dream of success and profit. However, the reality of trading can be much more complex than it seems at first glance.

On the way to a professional career as a trader, many people make a number of serious mistakes. Let's look at the most common ones that even experienced traders can make, and tell you how to eliminate them.

Mistake 1: Unwillingness to learn

Mistake 2. Greed

Mistake 3. Trading on chance

Mistake 1: Unwillingness to learn

Mistake 2. Greed

Unfortunately, this is a common problem. Few people like to study and often read books just for fun. However, in trading, it is necessary to study and absorb information that can sometimes be difficult to understand. Even keeping a trading journal – where a trader writes down all his trading operations – is often ignored by people due to laziness. Although such recording of your strategies and mistakes could be a good help in further trading. Instead, we absorb some information and think that we already know enough. “What textbooks, everything is simple: draw a trend line and trade from it,” some traders reason.

Often, beginners at best get acquainted with the interface of the trading terminal, consider the available tools for drawing on the chart, study currency pairs and experiment with indicators. They connect a demo account, and then just thoughtlessly buy and sell currency. As a result, failure is inevitable.

The consequence of greed is excessive self-confidence, when people think that they will start earning immediately, starting from tomorrow, and they will not have any losing trades at all. Alas, they will not avoid disappointment in the future.

Everyone wants to make money on Forex, and that's quite normal. It's bad when you want to get a lot and quickly. Such traders forget about stop losses and try to hold a profitable position for as long as possible, contrary to common sense.

When quotes appear before your eyes, the number of points passed by lots is multiplied in your mind, and the amounts begin to seem large, the temptation to trade at random becomes too strong.

At best, newbies can study a strategy without going into details or understanding the essence, hoping that it will definitely bring them profit. At worst, a trader relies on his “feeling”, which he does not really have due to lack of experience. He can rush into the market, thinking that this is a good price for the trade, ignore the stop loss and suffer losses.

In order to minimize the risk of losses, you need to record your mistakes in a trading journal, and before opening or closing a trade, make sure that your actions comply with your own rules.

Mistake 3. Trading on chance

Mistake 4: Trying to recover losses immediately

Never rush. If you make a mistake, review your plan, perhaps your analysis was inaccurate. Do not try to jump on a departing train - this will not lead to success.

If you fail to catch the trend, stop and think about what went wrong. Remember that it is bad to lose money, but it is much worse to try to win it back immediately, thereby driving yourself into even greater losses.

Know your trading pattern and wait for the market to confirm it – only then will your entry be justified and reasonable.

“Impatient traders literally shoot their ammunition – money and emotions – and when the time comes to shoot, their guns are unloaded,” the famous American trader Larry Williams rightly noted about this.

A newbie in forex, seeing that the market is moving in the direction he initially planned, may begin to doubt the correctness of his stop loss and hastily try to enter a trade. The market does not forgive such behavior.

When deciding to enter a trade, emotions can interfere with trading and make you think that the price will definitely go in the opposite direction. In such cases, it is better to stick to a strict algorithm. If you see the same patterns on the chart that you have studied in advance, turn off your emotions and enter the trade. This is the only way to accurately determine whether your strategy works or not.

Sometimes, all people are not in the best shape. Problems may arise at home or at work, or the mood may be spoiled because several losing trades have already taken place. In such situations, the trader feels nervous and thinks: "Why is everything not going the way I want?" and suffers losses again. If you feel out of shape, close the trading terminal and go out into the fresh air. The market was here yesterday, it is here today and will most likely be here tomorrow. Yes, you will not make money today, but at least you will not lose all your investments. So rest, rest and rest again.

I will quote another American trader of the last century, Jesse Livermore, who said: "Do not take any action until the market itself confirms your opinion. A slight delay in the transaction is a guarantee that your opinion is correct."

Mistake 5. Excessive emotionality

Mistake 6: Don't blindly follow the advice of others

In trading, it is advisable to trust only your own analysis and decisions. You can listen to the opinions of other traders, but you always need to understand whether a given strategy is right for you or not.

A common mistake of new traders is to search for experts on different forums and mindlessly follow their advice when trading. You should not do this. You should have your own plan and a clear understanding of what you intend to do. You do not know what stop-loss levels the experts have, when they close their trades and when they open them. It may turn out that such an expert opened a trade, reporting it with a delay of 20 points, and then closed it without losses. By the time you decide to act on his advice, the market may change direction, and you will lose money.

This error can be caused by various reasons, such as the desire to recoup losses after an unsuccessful deal or simply not knowing how to manage your funds.

In addition, having started to earn, a trader may start to think about increasing the size of the position, which is not recommended, since this increases the risk of losing the entire deposit.

Mistake 7: Not following capital management rules

Mistake 8: Resisting the Current Trend in Trading

Some experienced traders also always avoid trading against the trend, but in my opinion, sometimes you can consider entering the market on a pullback, provided that you know exactly where the price is going and where it is going. Beginners are advised to refrain from such behavior, as it can lead them to serious losses.

This is considered a mistake, especially for beginners who do not yet have enough experience and confidence in their actions.

One of the most unwise approaches is to trade without using a stop loss. This is a mistake made by both experienced traders and beginners.

You can't control the market, but you can always control your losses. Before entering a trade, it is important to think not about the possible profit, but about the risks and set an acceptable stop-loss level.

If the trade is closed by stop loss, do not despair, because this helps you avoid big losses.

Mistake 9: No Stop Loss

Mistake 10: Catching "falling knives" in the market

Avoid trading during sharp movements in the market, especially on news. Always wait for the right moment to enter. Remember how Carlson said in the Soviet cartoon: "Calm down, just calm down."

One of the most common mistakes is trying to catch sharp movements. This usually happens in response to important news, such as US employment reports, etc. Prices jump sharply in one direction, and many traders try to catch this movement, hoping for a profit. However, the market can suddenly reverse, and your positions will be open at the most inopportune moment.

One of the most critical mistakes a trader can make after he has “caught the knife” is trying to average out his losses. It is important to forget about this strategy completely. Adding to a position is only acceptable if it is already profitable. Otherwise, this approach will lead to disastrous consequences. You may be lucky the first time or even the second time, but the probability of losing your entire deposit increases significantly in subsequent attempts.

Mistake 11. Averaging positions

Mistake 12: Not keeping a trading diary

Since school, we have been taught to do homework, and those who have understood its importance have a big advantage over others. A newbie often dives into the world of trading, makes various deals and often cannot explain why he entered the market a week ago.

Reviewing each completed transaction is an important part of a trader's work. To accomplish this task, a trading diary is needed, in which all the details of each open transaction are recorded.

Trading is an art that requires time and persistence to achieve success. Practice and do not forget to analyze the market. It is important to push your brain to be active and find working patterns. To trade successfully, you must, firstly, be attentive, and, secondly, constantly develop.