If trading were easy, everyone would do it — and everyone would succeed. Yet, we see lots of disenfranchised traders that try to blame everything but themselves for their inability to stay in the black and not so many successful investors. Why is it like this?
The problem is, on the market one can win only when somebody else loses. Following this logic, it may seem that 50% of traders are winning most of the time, while the other half is losing. In reality, however, the ratio of successful traders to their unsuccessful counterparts is not even close to 1:1. It is a well-known fact that most traders who have ever entered the financial market will lose their money and quit for good.
If you are not one of them and have decided to make it through, you might want to learn how to avoid these costly mistakes.
Trying to beat the market
The market is huge. You — as a retail trader — not so much. They say, ‘do not go against the market’ and ‘go with the trend’ for a reason. The thing is, big international investors can afford the luxury of going against the trend with the intention of affecting the asset price. What is true for them doesn’t have to be true for everyone. As a retail investor you have no power over the price and can only work with the market on its terms. Learn the market and adapt to it, don’t try to change the way it behaves.
Not admitting you are wrong
There is much more human nature in trading than generally accepted. People often see the market as a soulless machine with a consciousness of its own, while in reality it is a collection of traders that make informed decisions, thus influencing the overall outcome. Trading is a craft (as just it is science and art). You have, therefore, to constantly improve, work over your mistakes, admit it when you are wrong and move forward with a newly acquired knowledge and skills.
Being the smart one
Some traders believe they are just too good to fall for the common mistakes, observed on the markets. And thus, make arguably the worst mistake out there. Being able to receive constructive criticism and to study other people’s strategies can take you a long way. Stay true to yourself and stay humble. Don’t be that guy who knows everything yet keeps losing money.
Picking tops and bottoms
While it is without a doubt a good idea to buy low and sell high, it is not always as easy to implement in practice. The tricky part is to pinpoint the exact moment when the trend is most likely to reverse (more on that here). Most people who wrongfully apply this strategy buy the so-called ‘falling knife’ — a stock that is destined to keep losing. Eventually, they will buy low but sell even lower, watching their account slowly melt away.
Turning to emotions
There is nothing wrong with being emotional in ordinary life. When it comes to trading, however, emotions are plain bad. Emotions, both positive (from a win) and negative (from a loss) will obscure your trading vision and decrease the probability of making sound decisions. When feeling emotional it is best to take a break and calm down. Otherwise you will face the risk of making an even greater mistake.
As you can see, most tips have to do with the way we, as human beings, think and operate when presented with a risk of loss and a probability of remuneration. Being able to tame your emotions, stay a cold-blooded speculator is the way to go.
