Trading is such a thrilling and interesting space. Once a trader has learned the right way to analyze the markets and put forth a robust trading plan, the rest of their success and consistency in making good profits lies squarely in their discipline to follow their own rules. Unfortunately, most traders will repeat the same mistakes, being constantly knocked down by the markets until they learn how to master their emotions and respect the market waves.
As traders, we are on a life-long learning journey. We take lessons from the markets, and from our mistakes, and constantly grow to be better and successful traders. Isn’t that the case for life in general? As a trader, you must remember the outcome of every single trade is random. There’s not a single professional trader that lets their last trade influence their next. Win or loss.
Rarely do traders not know that they are committing these sins in the markets. So at the end of the day, it’s usually a case of a shift in mindset, deciding enough is enough, that you’ll seek help from an expert, and change your trading approach from today going forward, which is what you should have done a long time ago. Imagine where you can be one year from today. A relaxed approach to trading the markets, peaceful life, consistent profits, and building a competent trading performance that will shape your career and open you up to immense opportunities that await you in the global financial markets.
If you’re aspiring to start trading, there’s no better time to learn an online skill. Imagine possessing the skill to make money independently from your laptop or phone, and any place in the world. Having multiple sources of revenue is not an option, it’s a must. And an online skill in this era of the internet could be your path to financial freedom. Even better, you start on the right foot, with the right information, a practical simplified comprehensive online course, and mentorship from experienced trading experts.
Let’s dive into three of the biggest trading mistakes that traders face every day, which cause their progress & growth to be an uphill course.
Not Having & Following a Solid Trading Plan; A Scrip of Rules To Guide Your Trading
Trading is such a solo and lonely business, one of the most personal businesses in the world. You have the freedom to do anything you want in the markets on your own and by your own rules. This is the blessing of learning how to trade. Unfortunately, this blessing of freedom is the very disguise of a curse that traders face all over the world. When you start as a trader, the market lures you with the possibility of making more with less, and within a short time. Maybe it was an incidence where one, or a few of your trades turned out to be winners, your lucky day. That alone tricks a trader’s mind into believing that they can replicate those lucky wins over and over while avoiding losses at the same time.
However, sooner or later, and after a thorough beating by the markets, because the markets are ruthless when administering strokes of discipline, the same trader gets to learn that there’s no shortcut or option rather than respect the market risk and change their mindset and entire approach to trading. Developing a professional trading plan and following it strictly through all the seasons, both winning and losing seasons and especially in the losing streaks; that’s the antidote and the only redemption for this trading mistake. Approaching trading as a business keeps us in check to acknowledge that no business makes money all the time. For instance, you might end up being profitable for 9 months and experience losses in the other 3 months.
Not having a robust trading plan that guides your every decision and action in the markets is the mother of all trading mistakes.
Averaging Down on Losers/ Adding to Losing Trades
This is the nightmare of most new traders. To completely resolve a problem, we have to understand the origin, the root cause of the problem. It is by cutting out the roots of the problem that we can ensure our total deliverance & salvation from such notorious sins. The primary reason why traders add on to losing trades or extend their stop loss further away is their desire to avoid making the loss. This happens due to either or both of these two reasons. First is due to their lack of confidence in their pre-trade analysis and judgment that led them to take the trade in the first place. Second is mostly because they have risked too much in that single trade that they cannot imagine the trade turning into a losing trade, which means that their approach to trading is emotional rather than rational and data-based. At the end of the day, all that matters is how much you make in your winning trades, and how much you lose in your losing trades. Maintaining a healthy Risk to reward ratio such as 1:2 means that you can be right in only 50% of your total trades and still make 25% profits from your trading. Numbers don’t lie.
We can further track this mistake to the first point that we covered, i.e. a lack of following a proper trading plan. However, this goes deeper into the trader’s ability to understand and handle losses as part of the trading business; to manage risk as opposed to avoiding risk. Overcoming this mistake is such a big animal for new traders that also require them to understand and adopt the right trading psychology.
Failure to Look At the Bigger Picture; To Think Long-term
It’s intentional how I have aligned these points in today’s article. If you look closely, you’ll find the connection between these three mistakes, which proves that successful trading requires a holistic approach, one where all factors are balanced. You cannot be a pro in market analysis and be a bad risk manager, and expect to achieve consistent profits from the markets. On the other hand, if you have mastered your market analysis and have your risk exposure well contained, you have to adopt the right trader psychology.
Professional traders judge their trading performance based on a 6 months-period, or yearly, as opposed to the end of the week, or the end of one month. They are not in a rush, nor are they led by short-term unrealistic and unachievable greed. This is how successful traders think and act. It’s impossible for you to confidently evaluate and judge your performance by picking the 7 trades that you traded for one week, or the 16 trades that you have traded in the last month. Those are too few trades, and too insignificant to evaluate your performance. Professional traders evaluate their performance after 100 to 200 trades, taken over a longer time, at least six months to one or two years. As a trader aspiring to achieve long-term success, you have to adopt the mindset of looking at the bigger picture.
Complicated Trading Approach/Too Many Indicators/ Cluttered Charts
Clarity when analyzing the forex market charts is required to achieve the right judgment of the market direction. Most new traders make the mistake of having so many indicators on their charts to help with their analysis, without knowing that the many clustered indicators are the very reason why their analysis gets flawed and inaccurate. All indicators are lagging. This means they only show the trends and market activity of what has already happened in the past and too little about future market behavior. Indicators are meant to add a little confirmation to your analysis, not be the primary tools for your market analysis. Reading the markets using a simple approach of price action and market structure as we teach in our online forex courses is all that’s required to accurately understand and follow the market movements. If you have to add indicators on your chart, they should be as minimal as possible, advisably not more than two indicators.
Uncluttering your charts and mastering reading the markets from naked charts by applying price action and market structure will elevate your market analysis and trading performance.
As traders, we must acknowledge that trying to double a small trading account within a week or a month only prolongs your learning curve, and results in wasting more time and resources, not to mention the mental capital wasted in the process.
Until new traders realize that trying to take the shortcut is actually them taking the long route to their trading success, then trading will remain to be such a conundrum for them. Trapped in a circle of endless frustrations and losses, with no growth or consistency in their trading performance. The best part, on the other hand, is that as a trader you hold all the cards, it’s entirely upon you to take a firm stand and commit to changing your trading career at this very moment, which begins by changing your mindset going forward.