5 biggest mistakes every beginner trader makes

Nobody likes to make mistakes, but unfortunately no one is perfect and we are subject to make mistakes throughout our lives. It is how we learn from those mistakes that determines how successful we will be in life. Trading is no different, and you WILL make mistakes and you need to be able to learn from them if you are going to be a successful trader.

Adding to losses

Admitting to a losing trade is a bitter pill to swallow, but you will inevitably come across a trade that will not go your way, and how you deal with it will determine your outcome. One of the most obvious mistakes that new traders make is letting their losses spiral into even bigger ones. The thought that often goes through their mind is that they must be right and so they will wait for the trade to turn around.

In the most extreme cases some traders will actually move their stops to give a bit more breathing space, which is the worst thing to do. Your stop is your wall to protect your capital and if you keep moving it, your capital could be at even more risk.

Too much leverage

Leverage can be a very dangerous tool when trading because the lure of money can sometimes cloud the minds of even the most rational people. Even though leverage can be used to make a lot of money, but it is a double-edged sword and can just as easily destroy accounts if not managed correctly. It is advisable to not trade with leverage, and slowly build up your account over time than in a short space of time.

Not doing your homework

New traders are so enthralled by the potential make money by doing very little work, but unfortunately it doesn’t work like that. One of the reasons why many new traders lose money and blow up accounts is because they have not done their homework and not bothered to research what they are trading. The urgency to place trades without fully understanding the market you are in is common with new traders, so before you place a trade you should know your asset inside and out.

Chasing trades

Overtrading can quite literally eat away at any returns that have been made during previous trading days. Experienced traders have actually learned the hard way about over trading and chasing trades that aren’t there purely because they felt like they were missing out. One of the most important things in trading is to know yourself.

If you are the type of trader who gets easily excited about winning trades, or depressed about losing ones, make sure that you take a break from trading after each trade you close. Clear your head and come back to trade with an objective view of the market.

Not using stop losses

Stop losses are there to protect your capital from being wiped clean by a nasty trade that has gone south, and they are absolutely crucial for trading success. Tight stop losses generally mean that any losses that are experienced will generally be quite small in comparison to larger, much wider stops, but the benefits of using them far outweigh the benefits for not using them.

Every trading strategy will have specific rules about where you place your Stop loss. Make sure you follow these rules with every single trade you take, and your path to success will become easier.

Conclusion

There are so many things that new traders need to take into account when they first start trading, and they often miss the important things because they are too focused on ‘money’. Believe it or not, money isn’t the goal here, it is capital preservation and traders need to understand the risks they face when they place a trade and accept that there are some things that need to be done in order to be successful.

If you want to be successful than you need stick to your trading plan and make sure that you don’t make any of these mistakes. If you do make mistakes make sure you learn from them.