Many novice and experienced traders think that reading enough trading books or attending one or two training seminars is a recipe for success in the market. However, this is far from being true. You don’t have to be a beginner to make mistakes trading in the financial markets. A lot of advanced players make errors too, especially when they’re distracted or undisciplined. Still, there is a difference between the mistakes that novice and advance traders make. Beginners often set their trading strategies on wrong criteria or don’t have their priorities sorted. They are also more prone to giving in to emotions, which does more damage than good and ends up in poor trading decisions.
The first step to becoming a better trader is to first identify what mistakes you’re making and seek out ways to correct them. Most professional traders have gotten where they are because they’ve made a lot of mistakes but took the time to understand why they made them and continuously sought to better themselves.
Let’s take a look at 5 of the most common mistakes made by novice stock traders.
Most novice traders dive head first in the market with high profit expectations, believing they’ll get rich in no time. This is simply not the case. Yes, there are people who are very successful in trading Forex, but the majority lose their money. In any case, success takes hard work and a lot of time. It can take years to build up experience and turn Forex trading into a profitable full-time job.
In trading, your worst enemy is yourself. A lot of people can’t control their emotions when a trade is going in the ‘wrong’ direction and make spur of the moment decisions to close it and open a new one. This can wipe out your entire trading capital within minutes. Market orders are generally not a good idea for novice traders who don’t have a good understanding of how the market works and what indicators to base their trading strategy on. Sometimes, all you need to do is wait a trade out even if it doesn’t go in the direction you thought it would and this requires a lot of patience and self-control.
Inability to use a stop-loss and a take-profit
Placing a market order and leaving it open to ride puts your entire trading account at risk. Advanced traders almost never place market orders but instead put a stop-loss on a long position. This way, a Buy order will automatically close if the price falls below a certain level. This allows you to limit the amount of losses for each separate order, which is convenient as you can’t monitor the market all the time. A take-profit order works the same way: it secures profit by setting a level at which your position will be closed.
Trading based on news
A lot of novice traders believe that if they trade right after major economic or political news, they will be able to predict the direction of their selected currency or commodity. While there is some merit to following the news to stay informed on central banks interest rates, new emissions, new political alliances and other events that affect the market – you can’t manage your risks effectively if you solely rely on this information.
This comes in several forms: keeping too many open positions, setting excessive leverage and holding losses for too long. It’s natural that you want to diversify your trades to maximize your chances of profiting but a lot of open positions make you unable to respond to all the events properly and quickly. Beginners are more likely to take greater losses as they lack the experience to see when a loss trend is not going to reverse. Hoping for the better is not a sound strategy and you need to learn to take a loss and close an order. It’s the same with excessive leverage, which can be a double-edged sword. Apart from improving returns from profitable trades, it also increase losses on unsuccessful ones.
There are other mistakes novice traders make when they first start trading in the financial market but these are the most common ones. Remember that no amount of books or seminars can turn you into a successful trader if you don’t exercise self-control and discipline in applying everything you’ve learnt. Use this information as a baseline to identify your weak points and make smart decisions about how you can better yourself and start trading successfully.Trade here
NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
In accordance with European Securities and Markets Authority’s (ESMA) requirements, binary and digital options trading is only available to clients categorized as professional clients.
GENERAL RISK WARNING
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
77% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.