Trading is not an easy task. As you know, there is a no one-size-fits-all strategy in trade.
It is up to each trader to find their own path to profitability and success. Whether talking about the instruments to use, the indicators to follow, or the strategies to employ, different traders will come up with different combinations for these.
The right combination is determined by your influences, interests, your mind and others.
Some traders will choose to trade according to particular indicators while others will trade according to news.
The most important thing for you as a trader is to learn and make a profit at the end of the day.
However, even though there are different paths to success, there are a number of common rules to adhere to and mistakes to avoid.
It’s good to know all the trading strategies right. However, to increase your chances of success, you must learn the rules first.
Most traders are led by emotions, especially fear and greed. That’s why you MUST learn what not to do when trading.
In this article, you will learn…
Let’s start…
50 Trading Mistakes to Avoid
Thousands of new traders join the Forex market each day with an expectation of making it big.
And it is true, there is a lot money that can be made trading this market. However, there are a number of mistakes that hinder most traders from making this dream a reality.
These mistakes are related to lack of preparation, emotional trading to making poor decision, and they are what breaks many traders. They are common with beginner traders, but experienced traders also make them.
General Mistakes
The following are the common mistakes that you don’t need to make as a trader…
#1: Lack of Preparation
This is the number 1 reason as to why most newbie Forex traders fail. Trading is amongst the toughest professions that we have today.
It is very competitive and tough to maintain an edge in the market even after an adequate preparation.
If that is the case for those who are prepared, what about those who fail to prepare for the trading day ? Most beginners are ill equipped when joining the market.
Before joining the market, you must understand that you will be competing with market professionals like hedge funds and major institutions.
These are very experienced and well prepared for the market. The fact that you will be competing on the same playing field means that you must do your homework adequately each day and know more about the markets that you need to trade.
Whether you are a fundamental or technical trader, you must have a daily routing to follow.
This will mean that when the setup that you desire occurs, you will simply execute it flawlessly and without reservation.
#2: Failure to use a Stop Loss
To be a successful trader, you must be a good Risk Manager. Risk management should come before everything else.
One of the key ways of managing risks is by using a stop loss order. You must use a stop loss on each single trade. In addition to that, you must put a hard stop anytime you enter a position.
Most novice traders prefer to use a “mental stop”, in which they rely on a predetermined level at which they plan to exit for a loss.
Others avoid using a stop loss altogether as they are sure about a position, thinking that they don’t need one. Such arguments are flawed.
May newbie traders have made large unexpected losses for failing to use a stop loss. Such a mistake is avoidable !
#3: Failure to Cut Losses Quickly
This mistake is a biggie, accounting for most of the money that traders lose.
The reason is simple, humans don’t want to admit when they are wrong ! Admitting our own mistakes is a good thing, even in trade.
Once you realize that you’ve made a mistake, get out immediately, like, 10 minutes ago.
No trader has ever been 100% correct in their trades, and you will not be.
However,keep learning and improve the accuracy of your trades with time.
#4: Poor Risk to Reward Ratio
Most beginner traders think that the best trading systems are the ones with the highest win rates.
Due to this, they prefer strategies with a win rate of above 70%. However, you must know that such strategies have low risk to reward ratios, meaning they have a high risk.
Consider the following two strategies, X and Y.
Strategy X wins 70% pf the time with an average Win to Loss ratio of .50:1. This means the amount per winning trade is half that of losing trade.
Strategy Y wins 40% of the time with an average Win to Loss ratio of 2:1. This means the amount per winning trade is twice that of losing trade.
So, which of these strategies is more profitable?
The answer is strategy Y. This is true, even if the strategy has a low win rate.
#5: Lack of Patience and Over Trading
Most traders join forex to make quick wealth. This motivation is the reason behind their failure in the market.
Most novice traders think that the key to success in the market is trading round the clock. This is the absolute truth.
Instead of trading in a 3 minute, 5 minute time frame,you will be in a better emotional and financial position trading higher time frames like the 120 or 140 minute chart.
With higher time frame setups, you will enjoy better quality setups and less transaction costs.
Most Forex newbies are reminded of this mistake, only to ignore it, and begin to investigate what went wrong after blowing an account or two.
Always remember, it’s not how often you trade that matters, but how well you trade !
#6: Changing Trading Strategy after Losses
Losses are unavoidable, even the most experienced forex traders make loses. Newbie traders try to change their trading strategies once they make a loss, or a number of consecutive losses.
What they don’t know is that this takes them back to a learning curve. Just stick to your strategy, and each losing streak will come to an end.
#7: Failure to Expect the Unexpected
An unexpected news release, a sudden market collapse, or a loss of internet connection may happen unexpectedly.
To stay prepared for such events, keep a fixed stop loss in place. If your trading account is wiped out by a single trade, it means you never did enough homework as a trader.
#8: Not Paying Attention to News
As we stated earlier, you don’t have to trade the news. Even if you are a technical trader, make sure you’re aware of what is happening in the market at any particular point in time.
#9: Failure to do a Post-Trading Analysis
What do you do after completing a trading session?
This will determine whether you succeed or fail in your future trades. Professional traders take time to analyze their trades, crunch data and plan what to do in the next day.
#10: Failure to use a Trading Journal
No using a trading journal is an indication that you don’t have a future as a trader. Use that journal to track your taxes and expenses.
With such information, you will cut on unnecessary expenses and increase your profitability.
#11: Not Fully Mastering One Method
A common characteristic among failed Forex traders is jumping from one method to another.
You only need to admit that no trading strategy is superior to the other. What is needed is your ability to make the trading strategy work.
#12: Not Adapting to Market Changes
Once you have established a way of consistently making money only, you don’t relax. Financial markets change and evolve just like organisms.
New changes will come into the market, and if you fail to adapt, you will be pushed out.
#13: Lack of a Trading Plan
You must have a plan behind your trade.
What will you do if the price favors you ?
What will you do if the price doesn’t favor you?
What will you set for take profit and stop loss levels?
What should you do if the unexpected happens?
Your plan should answer all the above questions and several others. If you don’t have such a plan, you are simply preparing yourself for a disaster.
#14: Allocating Much Capital to a Single Trade
There are loses in trade. With some strategies, traders incur losses in 50% of their trades.
They only compensate for these by making larger wins than the losses. Other than preparing yourself for that, you must be smart when it comes to your money.
Capital management plays a crucial role here, so, you must not allocate much money to a single trade.
You are not sure of which trades will do well, and the ones that will not. You are not sure of the trades that will be profitable, and the ones that will incur loses. Avoid allocating much capital to a single trade !
#15: Trading after Making Consistent Losses
This is a common mistake that results from two things. First, you could be having a bad day, where things are not going your way.
Secondly, your strategy may not be working, and that could be the reason as to why you are making consistent loses.
If you are just having a bad day, you can simply defer trading to another day. Failure to do this puts at a more risk as you will trade out of fear and emotions.
If the problem is with your strategy, you can try to adjust it, or simply choose a new strategy .
#16: Predicting the News
Trading news may be lucrative since there is much action happening at the time. Much actions means volatility, which translates to more potential and quicker gains.
In some cases, it may be possible to gauge what is more likely to happen based on statistical analysis.
However, it is extremely hard for you to predict news releases, especially for beginners. Come up with a clear way of entering a position before the release of the news .
#17: Trading Unclear and difficult Patterns
Consider a typical Forex chart. It’s not that much mysterious. The price movements are depicted clearly. The charts are simple, showing how the market has behaved in the recent past.
With forex charts, it’s possible to see a patterns that is actually not there. You don’t understand the pattern well, then you decide to run with it. And then you begin wondering why you keep on losing.
Stick with clear and unmistakable patterns and indicators.
#18: Ignoring Indicators
There is a story behind the technical indicators, and you can’t afford to read what they are saying.
If the indicators say that a trend is close to its top, it’s time to take your profits and get out of the trade. However, make sure that you stick to your trading plan.
#19: Emotional Trading
The forex market is a battle between the bulls and the bears.
When the bulls outnumber the bears, the price goes up. When the bears become stronger than the bulls, the price goes down.
The same battle will also play out in your mind, your gut, and your heart. There is a constant push and pull between fear and greed.
That’s why traders make psychological trading mistakes. Don’t let your emotions to overrule your mind!
However, you can also not ignore those emotions. You must harness them to help you.
Greed will only be good if it motivates you to work hard to learn how to trade.
Fear will only be good if it helps you avoid venturing into sure-loser trades, when it directs you to close a losing trade before you can lose money, and when it prevents you from overtrading your account.
Strike a balance. Learn to use your head and know when it’s good to fee greedy and when it’s dangerous to overlook fear.
#20: Entering a Trade Because of Gut
If you are entering a trade because of your gut, it’s a great mistake!
It is a common mistake among many forex traders.Doing so means that you are under the control of greed and hope instead of facts.
Learn to rely on the object reality of forex charts and the market. It’s a kind of fantasy, which is good for movies and books, not forex trade.
Begin by learning patterns and how to identify them in charts. Teach yourself to follow trend lines.
Also, cultivate the discipline of following your trading plan. This will prevent from making gut decisions.
#21: Hindsight Influence
Some newbie traders watch a trade once they’ve exited and beat themselves up after realizing that they entered early.
In other cases, they analyze a particular trade to know why they lost and change their strategy based on it.
A professional trader collects much data and makes sound trading decisions based on a large sample size.
#22: Failure to Differentiate between Short Term and Long Term Perspective
Any outcome is possible over the short term. You can neither control the outcome of trades nor predict the outcome of the next few trades, up to 10.
However, that doesn’t matter in the long term.
If you have identified a trading strategy with a positive expectancy, follow it religiously and you will make money.
#23: Micro-Managing Trades
Trade management is a hard task for traders.After starting a trade, you may find it uncomfortable to sit and do nothing. But sometimes, it’s better to do nothing .
Most traders desire to constant monitor, adjust and micro manage a position until it becomes counterproductive.
Try all you can to over such trade management mistakes. The best way to overcome these mistakes is by using a Set and Forget trade management policy.
With this policy, you simply do an analysis before executing the trade, which is the time when you are unbiased. You then set your stop loss and profit target and let the market do the rest.
#24: Not Taking Trading Like a Business
The goal of most traders is to be their own bosses, not being instructed on what to do by a superior. This can be good, but starting and running a business comes with challenges.
When trading, you are the only boss that you have. This means that you must be very strict. This means you run your trade like a business and be the best boss ever.
This may mean forgetting some of the activities you do during your spare time. It may mean you will be trading fulltime.
#25: Averaging Losing Trades
This is a great mistake in trade, but most traders have done it in their trading careers. Being more aggressive in a position makes you lose the most amount of money.
Averaging losers is a horrible strategy in the markets. Doing so is like asking for your account to be blown up.
Averaging the losing trades and trading too much size is one of the major reasons why most newbies fail in trading.
#26: Internalizing Losses
Most beginner traders tend to equate losses with failure. This is especially the case with traders who have succeeded in other professions like engineering, law etc.
They like getting things done right. They join forex with this mentality and it blows their psyche.
Before starting to trade, you must understand that making losses is natural. This will help you overcome the negative emotions associated with making losses.
Don’t let your mood and judgment be affected by the performance of your recent trade.
What Traders Think and Say
It begins with a thought, then develops into words, and then into an action.
If the thought is wrong, the words and the actions will be wrong. The trader will then make a mistake, resulting into a loss. Here are common mistakes that traders make…
#27: A Smaller Stop Loss Indicates Less Risk
There is no relationship between the distance of your stop loss and the potential risk of your trade. Risk should be measured in the potential loss of your trading account.
The stop distance should be set in relation to the take profit distance and the trade size. This will give you an idea of the potential risk.
#28: Measuring Performance in Pips
If you compare your profits in terms of pips, it means you don’t know what you are doing.Pip measurements are random and should not be used to express performance.Pips are relative !
#28: Ignoring winrate and risk : reward Ratio
By themselves, the winrate and the risk : reward ratio have no value.However, if you combine them as a trader, you will know the future performance of your trade.The combination of these two is one of the greatest concepts in trading.
#29: Talking of Absolute Numbers
Anytime you find someone talking of absolute numbers in trade, just know it’s a scam!If anyone wants to talk about the possible returns, let it be in percentages.
So, avoid statements like, “Make $3000 per day daytrading.”However, you must state the potential risk involved. Talking about the potential profits only is dangerous and pointless.
#30: Blaming the Algorithm and HFT
The algorithms and High Frequency Trading are not the reason behind your inability to make money.
These two are just new technologies, and they change according to the way the game is played.If you make a mistake, accept it instead of blaming the algorithm and HTF.
#31: Trusting Price Forecasts
It’s impossible to tell where the price will go in the future.Yes, you will always find a number of traders who predicted the price correctly. However, it’s not good to follow somebody who was plain lucky !
#32: Negatively Describing your Trading Day
Markets may go up and they may go down. They sometimes move faster and other times move slower. That is the nature of financial markets.
However, traders who trade because of excitement and thrill don’t last long in the market.
Develop a professional mindset and use the right language to describe even your worst trading days. This will help you avoid emotional trading !
#33: Using Absolute Words
It’s dangerous to use absolute words in trade.A particular setup may have worked 100% for the last 20 times.However, don’t trust it much, it can fail this time!
And simply because prices have never gone sharply against you, that’s not an excuse to avoid using a stop loss or take a bigger position.
#34: Using words like “wish”, and “hope” when describing a Trade
Anytime you find yourself thinking or saying that you hoped or wished that the price behaved in a particular way, exit that trade immediately.
Traders should rely on hard facts and trade depending on actual statistics of the proven methods.If you trade based on emotions, there is no doubt that you will fail !
Risk and Money Management Mistakes…
Here are the risk and money management mistakes that you should avoid as a trader…
#35: Watching your Floating Profit & Loss
When trade, don’t watch your account as it goes up and down with your every tick.
This will make you trade emotionally!
#36: Calculating what to do with current Profit
Only risk to lose what you can tolerate. If you trade too big, you will make decisions out of greed and fear, which are the biggest enemies of traders.
On the other hand, if you trade small, you risk becoming too sloppy and trading without following trading and risk management rules.Try to strike a balance between the two !
#37: Ignoring Correlations
There are high correlations between financial markets. Traders try to diversify and reduce their risks by taking numerous trades in different instruments.
Such traders forget that the trades move in sync, especially if the trading instruments are related in a way.So, instead of reducing the risk, they actually increase it. Don’t fall into that trap!
#38: Using the same Pip Amount and A Fixed Loss on Different Instruments
Using a fixed loss with a similar pip amount on different instruments only means that you are yet to understand the trading rules.
There is no secret to succeed in trading.
To develop a sophisticated stop loss strategy, you only need to know when you should enter a trade.
#39: Underestimating the Importance of Drawdowns
Before choosing a particular trading strategy, most traders normally do a historical study.
The goal is to know how many traders have succeeded using the strategy.
If they find that the strategy has 5, 6 or 7 losers in a row, they conclude that the strategy is not good.
That is wrong ! A strategy can be good even after 10 losing trades in a row.
#40: Adding to Losing Positions
You should never try this!
If you try to delay the realization of losses, you will be pronouncing a death sentence to your trading account.
#41: Not Trading an Account of the Right Size
Whether your trading account is too small or too big, both scenarios have a negative impact on your trades.
The two are major causes of emotional trading .
Trade Management Mistakes
Trade management is ABSOLUTELY VITAL for success, but most traders don’t understand it correctly. Here are the avoidable trade management mistakes most traders do :
#42: Not Keeping a Trade Checklist
Most beginner traders don’t keep a trade checklist.
Keeping a checklist and going through it before entering a trade can improve your performance significantly.
The checklist will keep you away from trades that don’t meet your criteria and increase your trading discipline.
#43: Widening your Stop Loss Once If the Price doesn’t favor you
This is a big no! See your stop loss as the place where you accept that your trade idea is wrong.
Widening your stop loss only means that you are trading out of emotions and that you can’t make sound trading decisions.
#44: Using Metal Stops for Flexibility
You will gain no advantage for using a mental stop loss. Never!
#45: Pulling your Stop Loss Order to Breakeven
Don’t do it, unless you are sure it’s the most optimal approach.
Doing so means that you fear taking a loss and giving back profits.
#46: Moving stops too close
Prices move in waves, and giving your trades a room to breathe is important.
If you move your stop loss too close to the current price, you may get out of trades that may take you to your take profit order.
You must learn to differentiate between minor retracements and reversals.
Common Sense Mistakes
Some of the mistakes made by beginner traders only shows that they are not serious with trading. Such mistakes push them out of the market. They include:
#47: Buying cheap EAs and Robots
Just because you don’t want to trade yourself doesn’t mean that you fall for any EA or robot that you come across.
Don’t get a $10 robot from an unknown website, not even knowing what the robot does.
If you can’t understand that this is a bad idea, you will find out for yourself.
#48: Not believing that Price can move Higher/Lower
Even when the price stays in a prolonged rally for many months, you will still find some traders waiting for an imminent turn, constantly looking for short entries.
When it comes to trade, nothing is impossible as far as the price is concerned.
#49: Trading your own Money in a Demo Account
Some traders will open a demo account, do some random trades, and begin to trade their own money after 3 months of mixed results .
There are numerous possibilities to trade and people can be blinded by this, especially beginners.
However, there are big pitfalls and the next margin-call is only one click-away.
#50: Taking Advice from Everybody
You will meet different people with all sorts of ideas, some promising heaven.
However, NEVER enter a trade based on tweets, opinions or promises made by others.
Just learn how to trade at your own pace and you will NEVER regret!
Summary
Here is a brief summary of what you’ve learned…
- -Although many people join forex each day, not all of them make it .
- -The major cause of failure among traders is emotional trading .
- -Fear and greed are the main enemies of traders. Without these, you can make sound trade decisions and record a success.
- -Once you’ve made a mistake, accept it.-There is no final destination in trading. Each trader keeps on learning.
- -Always put in honest effort to make incremental improvements.-You will increase your chances of success in the market.
- -Failure to that means you are doing yourself a disservice and increasing your chances of failure in the markets.