10 Most Common Trading Mistakes You Should Avoid
There are certain mistakes that many traders tend to make. I am going to write down the 10 most common so that you can avoid them. Just by avoiding these mistakes, you will become a much better trader than most of the retail traders around.
Table of Contents
The 10 Most Common Trading Mistakes You Should Avoid:
Using indicators
I said it at the beginning of this course – indicators are quite useless. Big institutions don’t care about them. Also, standard indicators work only with “price” and “time”. For that reason the information indicators provide are always delayed.
Novice traders need to accept the fact that there isn’t a magic combination of indicators that would make good and profitable trading system.
Martingale
Martingale is a very risky money management system, which has its roots in casinos. The most common martingale strategy is to double your bet whenever you take a loss. So, for example, in roulette, you always bet on red. When you lose, you double your bet in the next game. If your initial bet is ₹10 and you lose, then the next bet is ₹20. If you lose again, your next bet is ₹40. Lose again and bet ₹80.
Let’s say that you win the 4th bet this time, so you have won net ₹10 (-₹10 -₹20 -₹40 +₹80 = ₹10). No matter how bad you are, and no matter that you don’t have an edge, you will probably be winning for a while.
Martingale
However, sooner or later you will have a losing streak and you will lose everything. It may look like a really small chance that you take for example ten losers in a row, but the problem is that sooner or later it will happen. And when it does, you blow your account.
Even in casinos, it happens from time to time, that one color in roulette appears 20 times in a row. If your initial bet were only ₹10, in the 20th round you would need ₹5,242,880 for another bet and you would be down ₹10,485,750. If you are curious, the world record is one color 32 times in a row!
Usually, you will be able to tell on a first sight if somebody is using martingale. Below is an example of how a typical equity curve of a martingale strategy looks like:
There are numerous martingale variations. People, for example, don’t close their losses so the equity (which is based on closed trades) doesn’t have the dips – except for the last dip which destroys their account. All martingale variations have one thing in common – they will all fail sooner or later. There is no way the martingale strategy works in the long run.
Believing too much in one trade
No matter how thorough your analysis is and no matter how good your trading level or trading idea appears to be, trading is always a game of probability. Even the best ideas and best-looking trades don’t always end in a profit. In fact, the best looking ones don’t usually go as planned, in my experience.
For this reason, don’t believe and don’t risk too much on one trade, no matter how appealing it looks to you. It may look like the perfect trade but it can still surprise you and fail as any other level. Even the best levels can have for example 70 % win chance. 70 % is really good, but still, you don’t want to risk too much money on it.
Using too big positions
When you are using too big positions and everything goes fine, then you have excessive gains and it feels just great. However, when things turn bad and you take few losses, big positions will drive you crazy.
Use position sizes that you feel comfortable with even after you took a losing streak.
Mistakes to avoid
I can guarantee you, that if you use for example 10% risk per trade and take 5 losses in a row, you won’t be able to think clearly anymore. You will most likely bend rules of your strategy and you will end up even in a bigger mess than you already were.
My advice is to use position sizes that you feel comfortable with even after you took a losing streak. If you don’t feel mentally fine and stable when losing, you need to lower the volumes of your positions.
Never being able to admit you were wrong
Every trader knows the feeling when the price goes past their S/R level and suddenly they are more and more in red numbers. It helps to have a predetermined SL and just automatically take it. There are, however, traders who don’t have predetermined SL and they sit, watch and hope.
They are not able to admit that their super level doesn’t get respected. So, they sit and wait for a miracle to happen. Trades like that only rarely end up with the miracle. In most cases, such trades end up in a disaster.
Not using Stop-loss
Not having a SL means that you can’t control the risk of your trades. Risk control is essential in money management and in profitable trading. Not having a SL means that with every trade you place, you potentially lose your account. This can’t even be considered a serious trading. Yet, some people still do it. Seriously, not using SL is probably the dumbest thing you can do in trading.
Some people say that they have a “mental SL” which means that when the price hits a certain level, they will manually close their position. Most of those people won‘t be able to admit they were wrong and they won’t close the trade when the time comes. Or they will be sooner or later surprised by unexpected spike move against their position.
Not using SL is probably the dumbest thing you can do in trading.
Mistakes to avoid
The worst case that can happen is some totally unexpected bank intervention, natural disaster or significant political move which will wipe their account clean in few seconds before they even notice that something is going on.
Entering a position without a plan
When you open a position only because of your gut feeling or if you open it on the spur of the moment, you are entering a position without a plan. Every trade must be carefully planned. You need to know where your PT and SL is going to be, you need to have a strict position management and you also need to stick to your money management. Benjamin Franklin once said: “By failing to prepare, you are preparing to fail.“ Quite fitting, don’t you think?
“By failing to prepare, you are preparing to fail.“
-Benjamin Franklin
Novice traders often enter their positions without a plan when there is fast price movement. This occurs often after the macro news. Those traders see that the price is moving in one direction fast and they feel an urge to make some quick and easy money from the rapid movement. What usually happens is that the price turns and they take a SL or they are stuck in a trade which they have no clue what to do with.
Following other people’s ideas blindly
It is a good decision to learn from somebody more experienced, to let them lead you and teach you. Actually, it is probably the best way to learn to trade. However, there are countless inexperienced people publishing their stupid trading ideas all over the internet every day.
Probably the most dangerous are broker analysts who publish their trading ideas in daily or weekly emails or on their broker’s websites. Why are they most dangerous? Because people tend to believe those guys. They have all the fancy stuff like big brokerage company, fancy emails, professionally looking photos and professionally looking market analyses.
Unfortunately, their only job is to make you trade more. Nothing else. They are employees and the more you trade, the more money their company makes. Their wage isn’t based on how much you make. It is based on how much the brokerage makes.
If you decide to follow someone’s trading idea, then make sure you understand the idea, the logic, and concept behind it and that you too made your analysis and you believe in that idea. Also, make sure you know all the aspects you need to know before entering the trade. You need to know your PT and SL, and you also need to know how you will manage your position before you actually enter the trade.
Jumping from strategy to strategy
I have already mentioned it before – jumping from strategy to strategy without really giving it any chance, time and patience won’t lead you to a magic strategy. It will only lead you to losses and to frustration.
You need to put a lot of work and patience into any strategy before you understand it and before you start trading it successfully. There isn’t any magic formula, that leads to quick profits. As in everything else in life, mastering a strategy takes time, patience and hard work.
Sticking with a bad broker
So many traders stick with their old broker just because they are used to trading with them and because they are too lazy to create a new account and transfer their money elsewhere.
They also don’t realize the big difference broker can have on their trading results. They think that half a pip now and then isn’t that significant, or that a small few pip slippage from time to time is also okay. In fact, it makes a HUGE difference and a few pip slippage is not okay. It happened so many times that because of my tight spreads, I was able to bank a profit where others took a Stop loss. This happens more often than you think and it makes a huge difference in your trading results.
Switching from a bad broker to a good broker can be a matter of turning constant losing into a consistent winning! I can’t really stress that enough. Having a good broker is one of the most important things in your trading.
Switching from bad broker to a good broker can be a matter of turning constant losing into consistent winning.
Mistakes to avoid
So, if you want me to help you find a solid broker, shoot me an email to: contact@ystc.in or below you will find brokers that I personally trade with and that I recommend.
Broker Accounts
Zerodha
Fyers (Free)
Dhan (Free)
Trading Platforms
TradingView (Free)
GoCharting