8 Common Trading Mistakes

psychology Mar 27, 2024

The most challenging part of trading comes down to a disciplined mindset. Here is a list of 8 common mistakes traders may experience and ways to thwart a few misconceptions:

1) GET RICH QUICK

Whatever market, trading is NOT a get-rich-quick tool. The market is abundant and money will come, in time. But, going in with a money reward standard for each trading session will not only make you susceptible to blowing an account but extend the timeline before you are consistent. Understand that this is a game of patience and subscribing to a ‘signal service’ will not bring you financial independence.

2) STICK WITH ONE

Subscribing to multiple methods may disrupt a traders frame of thought. If the current system isn’t working out, blaming the course and jumping onto a new course is the seed of deceit. Re-learning a course will take longer and can be a hindrance to a trader’s career. Instead, stick with one trading system that has a good track record, resonates with you, and stick with it until you develop a personal style that’s consistent.

3) FOMO

Fear-of-missing-out; Profits posted over social media can leave a trader thinking he or she is missing out on profit, resulting in a forced trade that is usually against the better judgment from lessons learned. The opposite of fear is courage and courage is found through confidence. Be confident in your trading ability and the system your style mimics. There’s no room for fear if you are confident in the system and above all, confidence in yourself to succeed in this enterprise.

4) HUBRIS

If FOMO is rooted in fear, overtrading is rooted in pride. Overconfidence can lead a trader to revenge trading, to justify their analysis in being correct. This hubris results in placing multiple positions at once in a hope to capture a ‘win’ to feel better or ‘right’, which is a slippery slope to blowing an account. Take a moment and pause at least ten seconds before placing a trade. Stay focused and trade what you see, not what you expect.

5) RISK

The safest practice is NEVER RISK MORE THAN 1% on a single trade. For every trade, always limit your losses to 1% before entering. It also means cutting your losses, learning from it, and moving on. Controlling your exposure (risk) to the market is the closest guarantee of preserving your capital and surviving in this industry. Additionally, once a trade is entered, never move or re-adjust a stop loss; changing limits increases risk and jeopardizes not only your account but your trading psyche. Remind yourself that you are a Professional Risk Manager. Although apart of trading, losses should be limited to 1% per trade.

A best practice to consider is to NEVER RISK MORE THAN 1% on a single trade. For every trade, it can be beneficial to limit your losses to 1% before entering. This means cutting your losses, learning from them, and moving on. Controlling your exposure (risk) to the market is the closest guarantee of preserving your capital and surviving in this industry. Additionally, once a trade is entered, it can also be a best practice to never move or adjust your stop loss. Changing limits increases risk and jeopardizes not only your account but your trading psyche. Remind yourself that you are a Professional Risk Manager. Although losses are a part of the game, they can be limited to only 1% of your entire account per trade.

6) PATIENCE

Stay composed during choppy market conditions by waiting for proper setup criteria regardless of the time it takes to develop. A trade shouldn’t be forced, rushed, or placed blindly. Patience must also be applied to your winners. Once established in your trading plan, allowing your winners to run for over 1%+ gain is a sure way of seeing profits sore. Patience in trading should additionally be applied to letting your position run even if the price is sitting just near your stop-loss. Never close a trade out early! Contrary, don’t close a winning trade if it hasn’t hit its target. Be patient with set-ups and let your winners run!

7) JOURNAL

Take notes for every win AND loss. Learning from each loss is the fastest way to become a successful trader. Losses are the cost of doing business when it comes to trading, but the beauty of each loss is a learning opportunity. Not only beneficial in cutting losses but with a detailed self-review through journaling, a trader can identify if a trade was placed based on emotion (FOMO, HUBRIS), if a trade could have been entered later or held longer for more profit (PATIENCE) or if it was just a good trade gone bad. Taking notes for ALL trades is an intricate part of trading that separates a survivor of the market vs a thriver of the market.

8) BE A MONK

A string of losses can be detrimental to a traders’ mentality. Maintaining composure through the ups and downs of your journey will open the possibilities of what can be achieved through trading. Eliminating emotions when it comes to winning, losing, and placing a trade avoids unnecessary losses. Do not let the results of one trade affect your frame of mind. Every day is a new day. Enter each trading session with a clean mental slate whether the previous day was a gain of 15% or a loss of 15%. Remember, there is always opportunity in both winning and losing but only with an emotionless attitude.

Conclusion

Although there are a plethora of mistakes a trader can experience, these 8 are the most common. Sometimes the only thing stopping a trader is a concept they need to grasp. I hope this article has been informative and instructional. Thanks for reading!

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