Trading appears to be quite easy. After all, a price can only go up or down, so all you have to do is pick the correct direction and wait for the money to roll in, right?
The trading world may hold surprises for those with big ideas but little else. You will recognize that trading errors are part of the learning process and might help you become a great trader if you aren’t well-prepared.
Here are some of the more common mistakes rookie traders make and what you can do to avoid them.
Choosing a risky trade over a secure, tested investment.
If you follow any kind of financial news, you’ll note that there’s something bad happening in the world every day. That may be why novice investors tend to panic and choose their investments without sound reasoning or logic. The result is usually bad predictions and many losses that could have been avoided with patience and experience.
If you’re making too much noise and taking unnecessary risks when choosing your next stock, fund or another investment vehicle, take a step back and review the facts. You want an asset that pays good returns over time while remaining steady during market volatility, and bonds or index funds will help you avoid the risks associated with stocks when you’re dealing with a budget.
Very few investors seem to know how to plan for unexpected events, but it’s an important part of life. Financial emergencies can strike at any time, and panic often leads inexperienced traders into making bad decisions that result in even more losses.
If this sounds like you, make sure to set aside enough funds for unexpected costs while you are actively trading.
The larger your margin, the better chance you have of recovering from a significant loss without losing too much money or having to sell off assets prematurely.
Chasing trends instead of reacting after prices change.
You might think predicting price movements is easy, thanks to the media, but professional traders won’t turn you into a millionaire overnight. The simple fact is that nobody knows where the market will go, thus professionals are best avoided for your own good.
Instead of trying to guess the future value of various assets, make sure you have multiple sources of income or other investments before investing in anything else.
Thinking is Easy
Thinking about trading is easy because everyone talks about it.
Many rookie investors don’t practice their skills before actually committing money to the market. Instead, they rely completely on luck and hope for the best possible outcome. Unfortunately, many novice traders end up making decisions based on what they want to hear rather than any real knowledge of financial markets or exchanges.
If you’re not committed to becoming an expert yourself by studying a variety of sources and doing your research, you will encounter some serious problems along the way.
Trading is based on pure emotion rather than money management and risk assessment.
If you’ve ever seen a movie about Wall Street, you might be tempted to think that trading is all about making millions at any cost. Instead of thinking like that, think about your goals for the future and work towards them every day if necessary. You should also commit yourself to learning how markets work and spending time considering your options before pulling the trigger on anything.
Many rookie traders don’t take their own circumstances into account when trying to predict market outcomes, instead, they just hope for the best each time.
Making mistakes due to impatience rather than skill or knowledge.
Impatience not only prevents many novice traders from becoming professionals, it can also lead to financial losses. Investing isn’t easy, and it takes deliberate effort to make smart decisions when buying or selling assets. When you choose something without doing your homework first, you will not be able to identify opportunities before they disappear.
The best strategy is to work towards earning more money through other means while practicing different strategies in a simulated environment until you are confident that everything works well for you.
Believe it or not, no research when trading currencies can cost you money in the long run.
If you don’t do your own research when analyzing various options for investments or futures trading, someone else will take advantage of your ignorance by selling bad advice at good prices. Even if this sounds crazy because there’s so much information online, you have to gather data from different sources before acting or allowing your emotions to take over.
Ignoring the latest news can be a big mistake because it’s impossible for beginners to keep up with every relevant development that could impact their portfolio.
While staying informed is good practice for everyone, especially those who have money invested in various markets, it’s easy for rookies to lose track of everything going on around them. If you do choose this approach, make sure you monitor market conditions constantly and respond quickly if a significant development occurs.
For example, an important piece of information might lead to a series of price changes that would affect your trading decisions later on. Make sure not to let it pass by unexplored!
Sticking to One Platform
It doesn’t matter how you choose your investment options, what matters is that you’re committed to sticking with them in the long run.
There are many trading platforms in the world, and choosing one can be difficult even for experienced investors because they all have different features. Some people like sticking only to one type of platform when investing. However, it’s important to remember that different exchanges offer different values depending on their policies and minimum requirements.
Trading requires hard work, not blind faith!
Trading in Multiple Markets at Once
Trading in multiple markets at once is something that can be quite difficult even for professionals, which makes it a really bad idea for beginners.
While the idea of earning money through several trades might sound appealing to many people, there are certain risks involved due to the complexity of the approach. Furthermore, you won’t have time to analyze everything properly if you spread yourself too thin with so many things going on at the same time.
It’s also important not to give up your day job until you get comfortable with trading because it’s almost impossible to earn real money before being successful enough in practice sessions.
Thinking About Quitting
No one becomes an expert overnight, instead, an individual has to work hard and take their own circumstances into consideration in order to learn from their mistakes.
If you’re a beginner and feeling discouraged, don’t let your emotions get the best of you because it’s only going to lead to further damage. In general, trading is about controlling one’s impulses or emotions so that one can see things from a more balanced perspective until one has enough data to make an informed choice for themselves.
Trading requires a lot of patience and hard work!
Not Tracking Trades in a Trading Journal
Trading journal templates are incredibly helpful when it comes to monitoring your strengths and weaknesses.
It’s important not to beat yourself up if you’re feeling down about some losses because there’s always the next opportunity on the horizon, instead, try to make a detailed analysis of every single trade you make.
You can use trading journals to monitor different outcomes or even compare your numbers against the market. However, these things will become quite difficult if not impossible without keeping detailed records of each trade.
Remember, always get in touch with your emotions but let good judgment guide your actions!
Don’t fall into the trap of thinking that one singular strategy is going to be all that you need for success.
No matter how effective it might be, there are always going to be changes in the market as time goes on. In general, it’s a good idea to try out multiple strategies and see how they work for you because that will allow you to find your “edge” quicker than going at it alone.
Remember, trading requires hard work all around!
Spending Too Much Time on One Trade
No matter what kind of strategy you use, there is always a point where cutting losses becomes necessary.
If you have been putting too much effort into trying to make a certain trade profitable and it isn’t panning out for whatever reason, perhaps due to bad luck or lack of data, don’t think twice about closing out your position rather than allowing things to get worse over time.
The Bottom Line
Trading seems simple, but as you now know, it’s a lot more complicated than most would have you believe.
If you want to be successful at trading, you have to do more than just talk the talk – you need practical experience and a logical mindset to break even in the long run.
This is not a get-rich-quick system. All of the traders profiled in this article were committed for years before they saw any real success or sustainable growth. Don’t expect overnight results from something that will take years of study and work to master.
About Nyce Ayuk
Nyce Ayuk is a United Kingdom Trained Serial Entrepreneur, Blockchain and Cryptocurrency enthusiast, eCommerce expert, Author and Business Coach.
He leverages his vast knowledge and wealth of experience to educate people across the globe on how to create financial confidence for themselves from the comfort of their homes.