How to avoid Novice Traders Mistakes?
Trading is a complex business for a new trader as with "no experience and knowledge come great mistakes", one can't hide until he is aware of such mistakes. Let's read the top 5 mistakes novice traders with little or no experience make while trading.
1 - Going all in
The easiest way to lose all your money is to go all in because once you lose you have to start from the very beginning. Trading is not a casino, and luck should not be a part of your trading strategy. No trader is capable of winning all his trades as no matter what is your strategy nothing is 100% in this world. Sooner or later you will lose a deal and with it the entire trading capital, novice traders risk all their money to recover all the previous lose and sometimes it did work but this is luck and you can't be lucky all the time. No matter how many wins you had before, once you lose the final trade it is the end of the story. |
| Avoid all in |
"Avoid putting all your eggs into one basket and follow the money management at all costs".
2 - Changing strategies too often
When a trading strategy stops working for you, you should go and get another one correct?. Novice traders have this misconception that a strategy that fails, say, 5 times in a row is not to be taken seriously and should be avoided. But in reality, "All traders will go through a losing streak sooner or later, and even a prominent strategy can demonstrate the worst results in some particular market condition". Traders must understand that different market condition requires a different strategy or what else one can do is to select a particular type of market and trade over the same nothing different. |
| Avoid changing too much |
"Successful traders understand what works in one market won’t necessarily work in another".
3 - Trading without a trading plan
A lot of traders use their emotions as guidance, sticking with it is as dangerous as riding a bull because you can't control the situation, it's totally on the bull whatever he wants to do, in case of a novice trader who falls prey to this trap, emotion took over the mental capability and because of their greed and fear lose the battle in the end. The thing is, you are constantly tempted to believe in blind luck and fortune when trading. You, therefore, will take decisions based on your hope and confuse it with the gut feeling (that is, in fact, nothing more than your desire to win or to recover your losses). |
| Always have plan |
"Trading is not gambling; this approach may work once or twice but will ultimately fail in the end and nobody wants to end this story"
4 - Risking what you cannot afford to lose
Trading is a high-risk business. From time to time, all traders lose money and this is going to happen with each and everyone in this business. The thing is to manage your risks and never put at stake what you cannot afford to lose. There is a huge difference between being positive and having unrealistic expectations. When traders keep track of their losses and consider them an essential part of the trading practice, they are less prone to reckless behavior and are more likely to trade in a controlled manner. When, on the other hand, you believe in luck and anticipate winning every time, you are more at risk than you think you are. |
| Understand the risk |
"A healthy win ration will give you a satisfactory result, don't run towards 100% winning and never invest if you can't afford to lose it".
5 - Trading without a stop-loss
A stop-loss is a great feature that can help any trader get better control over his losses during the course of their trading session. According to industry specialists, you should learn to lose money (in a proper way) before you learn to earn them because no matter what you can't win until you know how it feels to lose. A stop-loss does what it says, automatically closing loss-making positions when a certain threshold is met. It can, therefore, help you greatly improve the overall effectiveness of your trading results. |
| An important tool |
"A stop loss is a great tool to limit your losses but if you use it in a wrong manner you will find hard to make any money using it. The biggest mistake novice traders make is they place their stop loss so close that no matter what stop loss will be going to hit in most cases whether the prediction was correct or not because the market is not a one-way car but a merry go round ride and due to this fluctuation stop loss will become your biggest enemy".
"Give some space to your stop loss, placing them tightly is not the solution but the problem".
Keep learning, Keep Practicing, have a great day ahead, stay connected to get more information related to trading,
NOTE: This article is not investment advice.
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