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Traders’ mistakes. 5 psychological and 7 technical mistakes of a trader.
Every trader should come back to the records of previous deals from time to time. It happens that beginner’s mistakes appear to be eye-catching when looking in the past. Not much of traders would conclude that all of them have been resolved though. Nevertheless, traders are aware of such mistakes and the fight is not over yet. Human psychology is very complicated stuff. It seems that traders’ mistakes are well known and nothing is easier than to avoid them. However, something keeps drilling inside and forces traders to repeat the same beginner’s mistakes over and over again. This is one of the main reasons why newbies, as well as experienced traders, keep losing money. This is why we decided to add this article to our blog, just to remind about critical traders’ mistakes with two main types of mistakes: psychological and technical.
Large players, of course, know about our weaknesses and keep making money on them. Do you think they totally avoid mistakes? Sure, they don’t. However, they work in teams and control each other while we have to fight our vulnerabilities on our own. Absolutely, we are able to improve ourselves, avoiding typical mistakes, and move to the next level of trading. The only thing that matters for this case is to know what to start with, and this article is exactly focused on those steps.
The web contains dozens of articles on this topic and they’re written with a blueprint about the same. Reading a couple of articles and comparing mistakes from the diary, a trader would think: “Why the hell I did not search for trader’s mistakes in the very beginning of my path, trying to find my own way and make some money off that?” That’s greediness and silliness, folks. So, any trader should start working on his trading approach not from own troubles but from mistakes by experienced and beginner traders.
It’s better to clarify psychological mistakes at the early stage of trading, whereas an understanding of the trading type is required whether it’s going to be a long-term -short-term or day-trading. A comfortable environment is needed to have success.
Mistake #1. A beginner does not want to learn.
It’s a pity but it happens rather often. Not so many traders keen on reading. Well, if it comes about an interesting book, it would be fine. But sometimes it’s needed to get a grasp of things which are tough to perceive (don’t forget to read books written by legendary investors and traders). Even the most simple stuff, like trader’s deals diary, is often ignored by traders due to the human laziness. It must be overcome otherwise you would not be able to trade in money.
Think about the fact that we have to indicate our mistakes in the diary and learn from them, but we don't want to do that. This is the first source of troubles. Some of the traders used to “read partially here and there, it’s done, I’m smart enough. Ok, 95% of traders lose, but I’m not 95%, I’m in 5%, I won't’ lose. So I will start making profits from tomorrow”. Here is the source of the second critical mistake which is greediness, as people need everything and now.
Mistake #2. Greediness is trader’s enemy.
“What books, they’re for the fools. It’s pretty clear. You just draw a trendline and work from it”.
What do usually beginners do? They open the trading terminal, explore the picture in front of them at best, including a couple of drawing instruments, play with technical indicators, register a demo account, buy, sell and that’s it. You would not want to waste any time after calculating the number of daily or hourly pips multiplied by the number of standard lots. You would rush to open a deal and get some easy money as fast and as much as it’s possible. The third issue comes right at that moment, trading at random.
Mistake #3. Bustling and wishing to recover a loss immediately.
Any newbie starts thinking that he’s a god of trading after he sees the market going in exactly the same direction he predicted. He also thinks that the stop-loss was placed inaccurately and it was the perfect time to enter the market with a large volume. The market does not forgive such a wrong action. A father used to punish his son not because he was playing cards, but because he was trying to win back. If you missed catching a trend, make a break and think what’s wrong. Don’t rush. Well, you made something wrong, try to think about a possible mistake in your analysis instead of jumping in the outgoing train. That would not work.
But if you’ve already made a decision, and the position is already opened, or as it often happens, you’ve been waiting for a trading signal and it was not coming for a while, then in 90% cases, you should forget about that deal as it will be closed by the stop-order most likely. You know a pattern, you sit and wait until the market will chart exactly the same formation. That would be an accurate and reasonable entry.
The rules are simple, once you write them down, all you need is to keep working on your temper, trying to work in a correct way. Most the most common trader’s mistake would disappear from your diary, then you can count that a step forward has been made.
Mistake #4. Emotionality is the main mistake of a trader.
Emotions hurt trading. When a trading decision has to be made, emotions could take the wind out of your sails, and make you think that the price would definitely go in the completely opposite direction to your correct previous forecast. In this case, an algorithm is the only option to help. Everything has to be written down, all of the patterns have to be drawn and once you see the same picture, which is drawn on the piece of paper, you just enter the market, switching your head off. That’s the only way to understand whether a strategy works or not.
The emotional balance is often broken. Some problems at home, or maybe you’ve made a number of losing deals. A trader feels excited: “How could it happen that everything goes wrong, here is my profitable position, finally!” And the loss comes again.
There is the only option for you if you feel wrong. Just close the trading terminal and go outside. The market was yesterday, today, and it will be tomorrow with a huge likelihood. It’s impossible to make money today expect to lose all of your balance. So you need to rest.
Mistake #5. Don’t listen to anyone!
Another main mistake of a trader-beginner is that he’s looking for a guru on several sites, forums and social media to trade using his advice. You should not do that as you have to have your own plan in the head, your own idea what to do. You don’t know the depth of stop-loss orders of that guru, what is the exact moment when he opens a deal or when he enters the market. He could open a position and inform you about that after the price went 20 pips, shifting the deal in the non-risk mode. Once you listen to him and open a position in the same direction but the market will reverse and go against you. The guru would not have a risk while you’ll get the loss, catching the stop-loss.
That was just one of the possible examples. But the fact is that you have to listen to yourself, otherwise you would not be able to learn how to trade. You can pay some attention to others’ analysis but you must have your own conclusion, trying to realize whether this particular trading approach is suitable for you, or not.
Technical mistakes of a trader.
One of the crucial components of profitable trading is to avoid technical mistakes. It’s very simple to fight them. All you need is to write down your mistake in the diary, and before opening or closing a deal, check out whether such a decision comes in contradiction to your own rules or not.
Mistake #1. Trading at random leads to losses.
In the best case, a newbie would use some trading strategy. ‘Any’ is the right word, as the beginner does not understand anything in the market, who sells, who buys and what is happening. Why yesterday's price action was for 100 pips while today it’s moving for only 20 pips. However, a strategy exists on the internet and let them all say that ‘working strategies would be published on the web for free’, but he’s a genius and he found exactly the stuff which will bring the result. In a worst-case scenario, a trader-beginner would rely on his internal feeling (which is absurd as he does not have any experience).
A beginner would rush entering the market because he feels that this price is perfect for the deal opening. There is nothing to afraid as the stop-loss order has been set. Unfortunately, that’s the first mistake, the first loss and the deal is closed by the stop-loss order, reversing exactly from that level and going in the right direction. What’s happening in the trader’s head? He starts thinking of the fourth main mistake.
Mistake #2. Newbies do not follow money management rules.
When a trader contravenes money management? Option 1. A trader is aimed to cover the stop-loss from the previous negative deal which is exactly the win-back situation. That means you made a step back, move to paragraph 4. Option 2. A trader does not know about money management rules at all. In this case, several experienced traders’ opinions have to be researched and the most suitable system of density calculation has to be implemented. Traditionally, that’s around 3-5% of the account balance. Option 3. Starting a series of profitable deals, a trader changes the lot size limitations, increasing the trading volume. That’s prohibited. Increasing the lot size, you enlarge chances to waste all of your account balance.
Mistake #3. Trading against the trend.
It’s worth noticing that this paragraph is considered as the mistake for beginners as they lack confidence and experience. Of course, even many experienced traders do not prefer staying against the current trend. However, that does not mean that opening a deal on some retracement is incorrect, the main idea is to know levels and jump out when needed. Newbies should avoid trading against the trend, the mistake could cost a lot of money.
Mistake #4. Trading without stop-loss orders.
The most stupid action is to trade without stop-loss orders. Experienced traders and beginners make mistakes from time to time - it’s normal. We cannot control the market, the only thing which we can do is not to give the market taking above the measure. You should think about a loss but not a profit before entering the market. Is that particular level of the stop-loss affordable? If yes, we can open the deal. If not, then we wait longer. Once the stop-loss order was triggered, there’s no much of a problem here, as you do not get upset too much when you buy a monthly travel card for a bus. Those are spendings that would allow you to make more profits in the future. Not even mention stop-loss orders.
Mistake #5. Catching a falling knife.
Do not run the market. The most popular traps by large market players are in sharp whipsaws of the price. That usually happens on important macroeconomic news (Non-Farm Payrolls, etc.) when the price jumps in one direction and everyone rushes in pursuit, thinking: “What a huge price action to catch!” The market reverses all of a sudden, while your position appears to be opened at the very peak but in the wrong direction. The rule comes out of that example: avoid trading on sharp whipsaws, especially based on news. Get more experience and patience, wait for your entry level. As it’s been said in a movie: “Be calm and conciliated”.
Mistake #6. Averaging.
One of the biggest mistakes is to average your losing position after catching the falling knife. Do not open deals in the same direction if your current positions are under the water. Forget about that practice and don't even think about it. You can add some volume to a position if it’s already in the profit, otherwise, a catastrophic scenario would be in play for your account. You could catch it once, get some small profits in a second time, but you would lose all of your account balance as the result.
Mistake #7. Beginners do not keep the trading diary.
The final mistake of this list is related to any trader (whether experienced or beginner) who does not have trader’s diary. A newbie is fully concentrated on the trading process. He is trying to act all of the time, losing or gaining somewhere. But if you ask him about the reason why did he enter the market a week ago, he would not be able to answer. Every school teaches to make the homework. It’s easier for those who realized that principle. The others would struggle, marking the time. Providing the past deals analysis is a significant part of daily trader’s job and it has to be done deliberately. Traders require the diary which describes everything about the opened and closed deal.
Well, most of the mistakes are described, including psychological and technical types. There could be some additional paragraphs to be added to the list, however, we make sure that once you start avoiding those 12 types of mistakes, you will get much better in your daily trading. You should keep practising and analysing the market. Force your mind to keep working and finding new patterns, entry levels, reverse signals and so on. Any trader needs to be in shape all the time, as well as continuously develop his skills. Let us all have a profit in trading!