Learning to trade can be one of the most psychologically challenging things you ever tackle. Understanding how the market works intellectually is not enough- the key is to have a disciplined mindset and a strong psychological foundation.
And, regardless of how prepared you think you are, I guarantee you will experience some (if not all) of the common trading mistakes listed below… And that’s okay, in fact, it’s a good thing! You NEED to make mistakes and experience ‘failures’. These will be your very best learning opportunities. So, instead of beating yourself up, be grateful for the opportunity to learn, to gain greater awareness, and to ultimately become a better trader.
Just don’t make the same mistakes again.
- Fear of missing out (aka FOMO). One of the most important concepts a new trader needs to grasp is that the market offers endless opportunities. Missing a good trade doesn’t mean your life is over… You’re not supposed to catch every trade! So eliminate any fear of missing out and simply wait for those ‘perfect’ setups to present themselves. Allow your trading plan to play out and don’t get distracted or influenced by other trader’s opinions or your own self-doubt. Trust your analysis, and learn from each missed opportunity, knowing another is just around the corner.
- Revenge trading. The desire to be right and the inability to accept losses can lead to revenge trading. But what exactly is revenge trading? Simply put… self-sabotage. After a trader experiences drawdown, feelings of frustration can surface, leading to the execution of wreckless trades (that don’t even meet their specific setup criteria). This is a very slippery slope and can lead to the wiping out of an entire account. Remember, losses are a part of the game- accept them, learn from them and move on. Don’t continue to place trades in the hopes of making your money back. In the long-term, this will not be sustainable and will only lead to more frustration and continual setbacks.
- Misusing leverage. Too many traders start off by using leverage the wrong way. Risking 5% on each trade is an easy way to blow your account. Instead, you may want to consider limiting your losses to 1% (of your entire account size) before entering a position. Controlling your exposure is of the utmost importance if you plan on staying in the game long-term. I encourage my students to see themselves as Professional Risk Managers. And although losses are inevitable (and provide some great learning opportunities), capital preservation is key. Just because you may have the opportunity to use high leverage such as 300:1, doesn’t mean you should. For more on this concept, apply to my Trading MasterClass.
- Changing trading plans. Flip-flopping back and forth between different trading plans will not provide the results you’re looking for… patience is key. It’s much easier to place blame for your drawdown or lack of consistency on the educational program you learned from, or on the strategies you’re trading. But 99% of the time the problem is YOU. So, take a step back, review what you’ve learned and see where there are areas of improvement. Don’t be so quick to jump ship and adopt an entirely new trading plan… because I guarantee, there will be a steep learning curve for each one you implement. So instead of starting from ground zero with a new trading plan… be patient, allow your strategies to play out, and review each trade you take. This will ultimately lead to consistency and sustainability in the long-term.
If you identify with or have experienced any of the trading mistakes discussed above, great! You now have a broader awareness and can move forward, eliminating unnecessary losses and redundant mistakes. Don’t allow your emotions to creep in… always treat trading as a business. At the end of the day, you are a Professional Risk Manager, so act like one.
To speed up your learning curve, become my student and learn to trade my 5 personal strategies (applicable for both day trading and swing trading).
Do you have what it takes to tackle the market?