All traders make mistakes. No one is perfect. Even the most successful and experienced traders make mistakes. But it is important to always learn from your mistakes and, maybe even more importantly, recognize your mistakes when you make them. You must be unbiased when critiquing your own trading.
Too many new traders dive into trading without any experience or knowledge and begin trading off trial and error. This is foolish. It is crucial to receive the right education to help speed up your learning curve. A learning curve based on trial and error can be a very long and expensive one. Get the right education first, then begin your trading career.
True Trading Group’s Award-Winning Head Trader, Michael Edward, took the education and experience he received while working at a hedge fund and compiled beginner and advanced courses for traders of all experience levels to speed up that leaning curve. Here are 20 common mistakes that new traders tend to make. Keep these mistakes in mind and recognize them if you make them. Learn from them and do your best not to repeat them.
- Not initially learning from a successful trader and getting the right education.
- Giving up too soon before learning the craft of trading.
- Not managing losses properly. You must keep losses small. Small losses are more important than big wins.
- Chasing stocks. Resist the fear of missing out. Wait for setups with good risk/reward. There will always be another stock and another opportunity. If you miss a breakout, let it go.
- Trading with too much size before ready to do so, whether financially or mentally.
- Over-trading. Trading just for the sake of trading. Be a sniper, not a machine gunner.
- Not taking profits. No one ever went broke taking profits. Don’t be greedy. Focus on singles, the homeruns will come.
- Revenge trading. One of the most dangerous things you can do is trade while angry, frustrated, or upset. After a big loss or string of losers, take a breather. Go for a walk. Step away and clear your head. You cannot trade while emotional. Trading with emotions while cause you to make mistakes. And mistakes cause you to lose money.
- Not recognizing and learning from mistakes. You must critique your own trading unbiasedly. Sometimes you learn more from losing trades than you do winning trades.
- Not following your own rules. Develop a set of rules and stick to them, no matter what.
- Averaging down on a losing position. Only experienced traders should do this and even then, it can be a crucial mistake. Averaging down requires a different level of risk management that novice traders should not attempt.
- Trading without a real-time quoting software.
- Falling in love with a trade. Again, keep the emotions out of trading. Listen to the charts.
- Entering a new position during lunchtime. Lunchtime breakouts tend to fail more often than give you continuation because volume is usually lighter.
- Trading expensive large cap stocks with limited capital or small accounts. If you are bound by a small account, focus on lower priced small cap stocks with high levels of liquidity.
- Not knowing a stock’s earnings release schedule. If you are swing trading a stock (holding it for 2 or multiple days), you must know when the company is due to announce earnings. You don’t want to get stuck in a bad earnings announcement and large gap down.
- Looking to get rich quick by hitting a homerun trade. Trading is not a get rich quick situation. It takes discipline, studying, and determination. Focus on becoming consistently profitable over time. Not getting rich off one homerun trade.
- Being overly confident and not continuously furthering your education. You will never be too good to learn.
- Not conducting enough research. Due diligence and chart analysis are key in developing a good trading game plan.
- Trading with emotions. Again, emotions cloud judgement and cause you to make mistakes.