Introduction

From outside, trading may look very simple. Afterall, the price will either go up or down and the trader needs to just pick the right direction and wait for the profit to come in. Seems simple, right? Well, not quite.

Trading world can be a nightmare for those who have huge aspirations but zero preparation. 

While it is impossible to avoid making mistakes in trading completely, the key is to avoid repeating the same mistakes and learn from both successful and unsuccessful trades.

Let us look at some of the common trading mistakes that you can avoid next time.

1. Trading without a plan

Every experienced trader enters into a trade only after having a chalked-out plan. Their plan basically includes the entry and exit price, the amount of capital, and the maximum risk they are willing to undertake.

Most of the newbie traders enter into the market without any plan and trade based on their emotions. Even if some of them have a plan, they don’t usually stick to it and end up in losses.

Traders need to be mindful and avoid the mistake of trading without a plan.

2. Being impatient

Patience is the key to success in trading. If you are just starting out in trading, the best thing to do would be practice your trading strategies on a dummy platform first.

Doing so will let you make mistakes without the risk of losing actual money. If you desire to try trading in live market, then start with a small amount.

Even if you lose out on some trades in the beginning, don’t fall into the trap of revenge trading by entering into more trades to recover losses.

Having patience will ensure that you don’t get wiped out of the game.

3. Not researching enough

Before you begin trading, it is essential that you have a good understanding of the stock market. It is important to research before initiating a trade.

By putting in a good amount of research, you can identify good trading opportunities and avoid mistakes in the future.

4. Not understanding risk tolerance

It is essential for every trader to be aware of his risk appetite and invest accordingly.

For example, there are investors who are risk averse and cannot handle the fluctuation of the stock market. For such investors, investing in bonds and other fixed income securities is more suitable than trading in the stock market.

On the other hand, there are investors who have a large risk appetite and are willing to take any amount of risk to get maximum returns. Trading in stocks would be an ideal option for such investors.

Therefore, every trade must know his risk tolerance so that he can put a cap on his losses.

5. Not using stop-loss

Stop loss orders are used to purchase or sell a stock when the price reaches a certain threshold. This keeps the losses limited to an extent. Immature traders place their orders without using a stop loss which turn into big losses. 

However, there are times when the trader puts stop loss too close to the entry price which leads to early losses even before the trade plays out.

Therefore, stop loss should be placed in such a way that you get a good risk-reward ratio.

6. Using complex strategies

A big mistake that traders often commit is using strategies that are too complicated. On top of that, they try to trade using multiple strategies at once instead of sticking to one strategy and using one- or two-time frames.

Try to keep it simple and think quality over quantity. Follow a proven strategy and take trades in the direction of the trend. If the daily chart shows an uptrend, confirm it with a bullish trading signal before placing any bets.

7. Placing big trades

There is always a temptation to take a big position and hoping it will turn into a winning trade. But time and time again, it has been proven that taking a too big position on a single trade can be risky.

For example, you use 70% of your capital in a single trade and it doesn’t turn out in your favor. This can drastically decrease your capital.

This can also have a negative psychological impact on the trader. Therefore, it is important to take sizable positions and not risk the entire capital on a single trade.

8. Over-using leverage

Leverage allows you to take a much bigger position even with a small amount of capital. This is what makes trading in commodities, forex and crypto so attractive.

But as we know, leverage can amplify both profits and losses. Often traders only look at the potential gain and ignore the losses that can occur with the use of leverage.

You can lose your entire capital if you use high leverage and the trade turns against you. So, it is recommended that you start by using the lowest level of leverage and increase it gradually.

9. Following the herd

It is common among inexperienced traders to follow the herd blindly when it comes to patterns and strategies. This leads to traders overpaying for a stock or initiating a short position when the stock is about to turn around.

Therefore, new traders must develop their own trading style and avoid following the strategies of others without understanding how it might work better for them.

You cannot blame the other traders if you follow their strategy and incur a loss.

10. Not keeping a track of trades

It is important that you keep a track of all your trades to become a successful trader. You can record following information in your trading journal:

• Date and time of trade
• Position size
• Stock or instrument being traded
• Reason for entering into that trade

 It is also equally important to review these trades regularly so that you know what went wrong and make changes in your strategy accordingly.

Conclusion 

So these were some of the common mistakes that you need to be mindful about and try to avoid them as much as possible. Make sure that you don’t repeat the same mistakes again and again.

And remember, it takes time to become a successful trader. So, don’t lose hope if you make losses initially as it is a part of every trader’s journey.