One of the things learned on the trading floor is that the most crucial part of the success formula is to accept a loss. It’s how traders gain an additional profit and an edge against others. While acknowledging that having to take losses is not pleasant, traders should be able to accept it with a good exit strategy as it decreases drawdowns. Although not using stop losses is the most prevalent mistake novice traders make, it is not the only mistake they can avoid.
The crucial mistakes traders make and should avoid making are, in that order:
Day Trading
Day trading is a skill and requires much experience. Beginner traders certainly need a plan and look at the bigger picture before blindly starting buying and selling an asset of choice. The good news is that day trading has the potential to be one of the most rewarding skills you acquire. How beginner traders should begin is by first understanding why they trade.
Is it for satisfaction, is it for additional income, is it for independence? Goals must be set. Intelligent decisions start before trading, not after!
Day trading will always require more time than general trading but not more skill. When you start day trading without goals, you are putting yourself into too much risk and giving away any chance on your ability to make this a profitable endeavor.
Not Investing Time
You know any skill requires you to invest time, not only money in it. You don’t require more than half an hour a day for a good start in a day trading world. However, it would be best if you did this consistently. Depending on your lifestyle and goals, you might have 5 hours a day to invest in learning. That’s a good thing, but it can be distracting you from the main focus to becoming a day trader if your brain is burned-out. Trading is not a full or part-time job. However, it requires commitment, determination, and a clear mind!
As a rule of thumb, beginner traders should think of time as what will take them to master trading and not as something that keeps them back from making money from day trading.
If you are not successful in your journey as a trader and you make consistent mistakes, you might be missing some technicals in your trading, and as a result, your P&L is terrible. Investing time reading and paper trading is a learning process. When you start making fewer mistakes as time goes on, think about putting a proper trading plan together.
Trying to be a Pro Trader
Face it. You are not a Pro trader because you started trading, whether you scalp, swing, or day trade, and whether you made some gains. No beginner trader makes money out of skill but out of randomness. Luck does not last, however. Many beginner traders with this mindset have no strategy and no plan. That’s a big problem cause most of the time, they will not be prepared for uncalled situations, which will hurt.
The good news is that you can do things to avoid that. Trading is one of those endeavors where having a plan and executing a plan is exactly what increases your chances of becoming a pro trader. Just entering the space does not.
You need to do a lot of the no 2 above so that your plan has a decent entry and exit strategy. It’s one thing to execute it, another to execute a good strategy.
Being Scared of Losses
While beginner traders are not scared when they take on trading, they are so worried about every trade after they experience a few hurting losses. This is more evident when they experience significant losses, as they will take longer than expected for the recovery to get rolling. A study from the Bank of England found that volatility causes traders to change their behavior, causing them to put off buying. Similarly, losing traders increase your P&L volatility and can put off buying as they make you more emotional to losses and profits.
If you’re looking for what to avoid, it is not using a stop loss. Only open trades can be fully reversed. With a stop loss, beginner traders never need to worry about even ending up with a significant loss.
As a result, they are unlikely to impact their emotions, thus their performance. Accepting a considerable loss will not affect your feelings similarly to taking a small one. It all points back at how fast the recovery might be.
A word of Advice…
It’s not that difficult to see where you made mistakes in trading and how to correct them. But what is, is failing to see the real root of the error, so the corrective course might not be so “correct” after all. Therefore, to improve your chances of succeeding as a beginner trader, the most crucial thing to remember is that you have to stop making mistakes by accepting the ones made first.
