Learning from your mistakes is very important but if we can learn from others it can be even better. It can save us time, steepen your learning curve and improve your skills. In relation to trading, you get an even better incentive as you can save your hard earned money. You don't have to put your money on the line into a trial and error kind of way and learn the hard way. Avoid some of these common mistakes that all rookie traders make:
Mistake #1 - Entering trades without proper preparation If we want to treat our trading like a business, then we should consider each trade as one of our products. We want to make sure they’re of the highest quality, so we be proud of our work and confident in our decision-making. Ensuring you have done your due diligence can psychologically aid us when markets aren't going our way as you have not entered trades blindly and have reasoning behind your actions.
Here are some things to think about before entering a trade: Market sentiment - How are traders and big banks trading? (Use the COT Report to help you find this out) Fundamentals - Are there any macro economic events to be released that could affect your chosen asset? Key price zones & structures - Is price at any support and resistance areas or key pivot zones? Market cycle - What kind of market cycle are we in? trending, consolidating or retracing.
Mistake #2 - Over trading Markets do not provide profitable setups aplenty, so if you find yourself finding everything attractive and adding multiple positions then you're not doing your due diligence and will find yourself entering a draw-down. Capital lost can take a long time to regain so be careful with your trades. Patience is key. You have to learn to become reactive rather than predictive and wait for markets to meet your criteria for trades.
Mistake #3 - Revenge trading
Markets are cruel, winning positions can turn into losing positions very quickly and we can encounter a string of losses. It's important to make sure you don't chase your losses and let your emotions get the best of you. No one can be correct all the time, losing is just as important to trading as winning is. How we handle those losses are make or break. If you encounter a draw-down take a break from trading, sometimes not trading is a strategy in itself. The market can be very addictive but understand you don't need to be involved 24/5.
Mistake #4 - Not setting stop-losses
Being a retail trader, we don't have all the tools or the capital like big banks do so it is important to keep things simple. Determine when your trade becomes invalidated and set stop losses accordingly to prevent large losses. Everyone makes mistakes, especially beginners so ensure yours is set correctly.
Stop-losses shouldn't be set accordingly to how much you can lose they should be set around structure. That being said, risk no more than 2-3% per trade.
Mistake #5 - Trading without a plan
Every trader should have a trading plan and a plan for each trade. This should include: when to secure a % of profit, when to reduce risk and if to add more exposure.
When you don't have a plan, you can succumb to moments and let your emotions get the better of you. Be smart and test things. In conclusion, there is no doubt that the market is a paradox. But in order to succeed you have to keep things simple, develop your own strategy and stick to proper risk management rules.