Most common trading mistakes by amateurs
No definite objective plan
Professional traders always have high profitability and controlled risk trading pan while newcomers and amateurs lacks this. High profit and controlled risk trading plan consist of right entry point with target and a stop loss for continuous trading. This plan works for professionals for any given market and for any given time frames with minor tweaks. Newcomers and amateurs do not trade with this framework and for professional trading outside this framework is called as “gambling”.
Holding loss making positions
Most amateur trader’s holds losing positions for too long on basis hope and thinks market will turn around and make it winner. Sometimes it does but they also lack patience that why exit early from profitable positions taking small profit. Most of the times these bad trades or loss making trades are the basic reason for why millions of small traders thrown out of the market every year. Professional always put small stop losses in system to preserve their capital.
Trading too soon
Amateurs and newcomers often come across a trading system which can make money but before testing it virtually or understanding it in depth, they start trading with that system and most of the time succumb to its pitfalls. Because each and every trading system even perfect trading system also have some exception or pitfalls and if you don’t understand them they will destroy your account.
Professional follow a good rule of thumb is that to log minimum 50 paper or stimulated trades with system before going live with it.
Lack of patience
Professional are disciplined and patience traders and they stick to their trading plan. While amateurs lack these qualities and often changes trading plan, trading system and risk. Which eventually exclude best winning traders and destroy the capital as early as possible. Each and every traders never forget this rule of plan a trade and trade a plan. Without the patience, to let a trade work and you will never be able to establish your trading plans true profitability of success.
Revenge or emotional trading
Revenge trading is when you get emotional over a lost trade and try aggressively to recuperate the loss. This is best known in gambling and called as “doubling down”. Common phenomena is when newcomer or amateur losses, his anxiety and stress level increases, he loses his analyzing power and his judgment become cloudy and that why he develop tendency to overtrade. While professional accept the loss keep ego to side and stick to the plan. Amateur’s ego dig bigger losing holes for them with overtrading.
Over leverage positions
Newcomers and amateurs get fascinated by derivatives profit and overlook risk coming with it. Most of the newcomers are undercapitalized and that why they took over leveraged positions. Trading is business like any other and needs right capital for its success. Over leverage, over trading and brokerage keep destroying thousands of traders each and every year before they learn anything from the market.
Lack of trade management
Professional traders trading system is designed with details on when and where to take profits throughout the trade and how to adjust stop loss accordingly. They analyses each trades risk and reward before entering them. While all these quality are not with amateurs and newcomers and if they have they never follow them.
Trading is most profitable but most difficult business present on earth. It immediately taps new trader’s weaknesses and strengths. The fight between fears of losing, fear of missing out, fear of non-acceptance, fear of failure and greed often have you second guessing your trading system which tear apart a traders confidence. These thing often result in second guessing and abandoning the working system which ultimately result in loss.
Quest for Holy Grail
Amateurs often jump to system to system trying to find Holy Grail indicators or strategy to make them successful. They forgot that basic rule of trading style which is do what is good for you and you risk profile. They must use this time to mastering existing trading plan and clearing its drawbacks. Newcomers and amateurs must avoid habit of “jack of all trades and master of none”
Accountability is the hard concept to understand and to accept for newcomers in trading. When traders have losing trades or losing streak they start blame game towards broker, market, conditions and even god. In trading money is yours, decisions are yours and that why success as well as failures are your too. Many traders not conditioned to be open to success and that’s why they end up with stabbing own account. Professional always take control of their trades, trading plan and they become inward when thing go to the south.