As a new trader, it is crucial to understand that the markets are not an easy place to make money at will. In fact, it is a zero-sum game, which means that for you to make money, someone else has to lose money. If you're not careful, you could easily fall into the trap of making common mistakes that new traders often make, resulting in significant losses. In this article, we will explore the top mistakes that new traders make and provide tips to help you avoid them.
1)Trading without proper education
One of the biggest mistakes that new traders make is jumping into trading without proper education. It's essential to educate yourself about the markets and trading strategies before you start trading. Reading books written by successful traders, researching online, and following the social media accounts of real traders are all excellent ways to get started.
2)Taking profits too quickly and losses too slowly
Another common mistake that new traders make is taking profits too quickly and losses too slowly. This approach can result in small profits and significant losses, which can be stressful and detrimental to your trading account. Instead, let your profits run until they stop growing, and cut your losses immediately.
3)Trading with a large position size
Trading with a large position size is a mistake that new traders often make. It's better to have a big win with a small position size than a small win with a large position size. Taking small risks and cutting losses when you're down 1% of your total account equity on one trade can help you avoid significant losses in the long run.
4)Letting the ego take over
The ego is a terrible trader, and letting it take over can lead to disastrous trading decisions. It's essential to trade with a plan and not with an ego. Admitting when you're wrong, cutting losses, and sticking to your trading plan can help you avoid significant losses and stay on track.
5)Making up how to trade as you go
New traders often make the mistake of making up how to trade as they go. It's essential to know your entry and exit points and how many shares you will be trading before placing a trade. Making up your trading strategy as you go can be a recipe for disaster.
6)Failing to choose a trading style
Choosing a trading style that suits your personality and risk tolerance is crucial. Investors may turn into day traders when fear drives them out, and trend traders may turn into swing traders when they lose many times in a row. Choosing a strategy and time frame and sticking with it can help you avoid significant losses and stay on track.
7)Getting greedy
New traders often make the mistake of getting greedy and failing to take profits off the table when it begins to retrace. It's essential to have a plan for a trailing stop and not to let greed cloud your judgment.
8)Focusing too much on entries and setups
Focusing too much on entries and setups is another common mistake that new traders make. The entry does not make you money; the exit does. Focusing on cutting losses and setting trailing stops on winners is the real way to make money in the markets.
9)Focusing on hot stock picks instead of correct trading
Focusing on hot stock picks instead of correct trading can lead to significant losses. Developing a winning method, managing risk, and clear thinking is what makes money in the markets in the long run, not stock picking alone.
10)Following a guru
Following a guru who promises to sell you a secret system or formula is a mistake that new traders often make. You want to learn how to trade on your own and not be sold a fancy fishing pole. Beware of gurus who offer shortcuts to success.
In conclusion, new traders need to be aware of the common mistakes they can make when
