There are countless reference sites out there telling you how to trade the markets. I know from personal experience that it can certainly be easier to make money teaching trading than from trading itself. The trouble is that most people who teach trading are not traders themselves. This means they rarely have an emotional connection with the pain of trading.
Pain, fear and greed drive the markets. The average retail trader loses money not because they are ‘wrong’ in their opinion. They lose money because the markets, driven by greed, inflict more pain (through volatility in movement) than they can stand. They invariably lose money because of this.
The top five mistakes I have helped traders overcome are:
1. Trying to reinvent the trading wheel
This is human nature. We are programmed to find the most efficient way of achieving our goals. Our goal in trading is to make money. I have seen it so many times: people think they can find an edge, or just try trading in a slightly different way to make money more easily.
You can’t. There is no retail edge, there is no ‘free money’. There is nothing you can think of that another trader has not. All this means is that you should stop trying to find an easy solution to trading. You have to find your own style but trading will always be about understanding how the markets move, fundamentally and technically, and how the markets behave to make you think you are wrong.
2. Not setting adequate goals and trading targets
Goals are very important in trading. If you just set generic goals like ‘I want to be rich from trading’ then how do you quantify this? What happens if you don’t achieve it?
Here’s my ABC of trading goals:
A. Goals need to be set monthly. So set an actual amount of money you want to make.
B. Then break these down into weekly and daily goals. One day’s trading should not ‘make you’ or ‘break you’.
C. Goals need to be personal to you. They also need to be realistic. If you have £1000 on your trading account, it’s unlikely you will make £10k a month for example.
3. Not having a trading plan
I have written many courses and spent many hours preaching the importance of having a plan. Have you heard the phrase, ‘if you fail to plan, you plan to fail’?
Knowing how you are going to achieve your goals is nearly as important as having goals in the first place. This means you need to know how you are going to trade: what time of day, your risk/reward ratios, the indicators you will use. The list can be endless in trading, so it’s imperative you know the means you will use to achieve your goals.
4. Not understanding that trading is a marathon not a sprint
Trading is a long-term activity. You need to trade for weeks and months to be both consistent and profitable. Trading is all about reinforcing and repeating positivity. Trading can be endlessly repetitive. That is why people like to write computer programs to trade.
In effect you have to be your own computer program. Trade for the long term with consistency as your aim.
5. Risking too much
Traders often feel they have to take on huge risks in order to be profitable. This is not the case. You can get into a trade several times with small amounts of risk before you make larger profits. This comes with discipline and understanding your risk appetite.
This ties in with points 4 and 2. If you risk too much in a single trade your overall goals will be skewed.
So these are the top five mistakes I have not only experienced myself but helped hundreds of traders to overcome. There are probably another five or 10 that are worthy of the top five. But ultimately trading is all about making the experience personal to you. Try not to fall into the trap of thinking ‘if I just knew a bit more I’d be able to…’
At the end of the day trading is buying and selling. That is it. All you have to do to avoid these mistakes is to understand your goals, form them into a plan, and then be comfortable implementing your plan in the markets.
Chief Market Strategist
The content of this article is the personal opinion of the author and not InterTrader. The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest. Nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.