Most new traders lose their initial account in less than six months because they don’t have good risk management tools or trading methods when they begin trading. The majority of them don’t make it to the fourth year in trade.
We’ll go over some of the most common mistakes new traders make and some tips for new traders to solve them.
#1. Trading with emotions
The success of your trading path will be determined by your trading psychology and ability to handle emotions.
Some traders, no matter how smart, are unable to cope with the stress of trading and fall prey to emotional decision-making. Making rash judgments based on fear, disappointment, hatred, extreme optimism, or greed is one of the most dangerous things you can do to yourself as a trader.
Following your trading plan is the best way to keep your emotions under control. Always keep in mind the factors and research that led to your trading decision. Keeping a trading notebook might also help you manage your emotions regarding trading. Entry and exit points, as well as an emergency exit, should be included in all trading plans in case anything goes wrong and you need to preserve your capital.
Overtrading is undoubtedly one of the most common trading mistakes new traders make.
Some traders monitor 20 charts, 10 different currency pairs and execute 100 trades each day. They place a premium on the number over quality when it should be the other way around.
Trading is similar to an extreme sport in that it requires all of your energy, focus, and ability, and you may have to push yourself to 120 percent at times. Rest is an important part of effective trading, just as it is in sports.
Trading more than the market allows is not a good idea. Never chase trading opportunities in the market, and don’t be upset if you miss a five-star trade. There will be more of them in the future.
Set your trading guidelines, and be sure to include your breaks and relaxation periods. Be patient, wait for the right opportunity, then seize it.
#3. Poor risk management
When trading in the financial markets, risk management is one of the most key aspects to understand. Unfortunately, most new traders overlook risk management concepts until they learn the necessity of risk management the hard way — by blowing their accounts.
Determine your risk-per-trade and reward-to-risk ratios for each transaction before placing it, and make sure they align with your trading plan.
As a risk-per-trade measure, use a set percentage of your trading account — most of the time, risking roughly 2% of your funds on every single trade would do. Make sure you’re risking less than your potential gains regarding reward-to-risk ratios.
For trading to be less risky, risk management is essential. Any trading strategy should include it as a vital and well-thought-out component.
#4. Trading against trend
“The trend is your friend,” you’ve probably heard before. Trading in the direction of the trend can be very beneficial to beginners, as trends can be highly persistent in the markets.
Many new traders look for rapid transactions against the overall trend in the hopes of shorting the very top or bottom of a bull or bear market.
Even for seasoned traders, catching the peaks and troughs of bull and bear movements is tough and risky. Smart traders generally purchase high and sell higher rather than sell low and high.
Even if you have read and digested the best books for new traders, taking advantage of minor ripples during counter-trend swings is significantly less productive than following the crowd and surfing the waves of a trend.
Trading is a science as well as an art. It’s a science because getting good results requires adhering to standards. It’s an art because markets change all the time, and rules that worked yesterday may not work tomorrow.
Using these tips may not guarantee you a failproof trading journey, but they will help you minimize your troubles.
Finally, make sure you use the best apps for new traders when trading and learn how to trade smartly.