Traders can make many kinds of mistakes. Your goal as a new trader is to understand the types of mistakes you could (and probably will!) make and have rules in your trading plan and routines to mitigate the effects of the mistakes you do make. As you gain more experience and review your trading on a regular basis, hopefully, you will see the types of mistakes you are making more often. As part of your professional development as a trader, you can set yourself new goals to improve.
Click on each of the topics below and examples of this type of trading mistake will appear in the right hand column.
Trading Without a Plan
Many traders trade without a trading plan.
They have no accurate risk and profit objectives before placing a trade.
Or they may have a plan but they don’t follow it, they simply ignore their plan.
Trading without a plan can lead to:
- letting losses run
- letting profits turn into smaller profits or losses
- closing out good trades too early
- continuing to hold bad trades
- failing to use a predefined risk
- trading emotionally
Traders can have a few winning trades and then tend to become overconfident.
- trading emotionally and ignoring the trading plan
- increasing position size and risk
- not taking losses
- becoming greedy
- not doing enough research
Greed can take many forms.
Greed can cause traders to:
- place too many trades at once
- trade against the trend
- take profits too early and miss out on larger profits
- lose patience and not wait for the correct set up for entry
Poor Money Management
New traders often practice poor money management.
Poor money management can mean:
- insufficient capital to trade
- holding onto losing trades
- taking too bigger positions and subsequently too much risk for the account size
- not using a stop
- taking trades with too low a risk to reward ratio
Psychology plays a large part in a traders success.
Some examples of psychological errors are:
- ignoring psychology altogether or dismissing it as unimportant
- thinking that tops and bottoms can be determined ahead of time
- thinking that you must always be right
- having too big an ego and trying to ‘beat the market’
- lack of discipline
- becoming attached to trades
- having directional biases
Lack of Technical Competence
New traders often make simple ‘rookie’ errors.
These errors should disappear with experience, however even the most experienced of traders can find themselves making an error that shows a lack of technical competence.
- Examples of these types of errors are:
- looking at the market in the wrong timeframe
- ignoring technical analysis signals
- poor timing on entries and exits
- trying to trade an inactive market
- not understanding the local and global sectors and markets relevant to the instrument they are trading
- trading against the trend
- forgetting to place a stop in the market