Here are a few Common Trading Mistakes that beginning traders typically make in the early stages of their trading careers. If you are new to the market, see if any of these apply to recent losing trades you may have made.
Improper Reading of a Chart
Many technical concepts, like trends, support, and resistance, are taught to new traders who then think they have a complete understanding of such concepts. Sometimes they think they should place a bullish breakout trade only to have improperly identified an uptrend and area of resistance. Nothing in trading is mastered overnight, and sometimes it takes experience to become adept at properly analyzing a chart.
Overreliance on Indicators
Sometimes new traders become fascinated with certain technical indicators, for example, the MACD or Stochastics indicator. When their preferred indicator produces a trading signal, some traders use that as the primary justification to make a trade. Technical indicators are wonderful tools, but a new trader should never rely on only one of these signals to enter a trade.
A trader can receive the proper education and have a solid understanding of technical analysis, but still ignore all of their training and knowledge and insert their personal opinion into a trade. When someone asks the trader why they entered this type of trade, the trader inevitably starts their reply with “I thought…”
- “I thought the stock would not go any higher”
- “I thought the company was too good a company to drop any further in price”
- “I thought the market was due for the selloff”
- “I thought the market would react differently to that news report”
Inevitably, you will develop certain opinions as you become engaged with the market. Always strive to make your trades on what the chart is telling you, not on guesswork or opinions on how you think the market will react.
Whether you are following a system trade or use a step-by-step method to identify directional trades, there is likely some routine or checklist you are supposed to follow. Too often in the rush to place a trade, new traders will miss/skip/forget steps to the trade through impatience or carelessness. If you have placed a few losing trades in a row, be sure to analyze the steps you took to see if this has occurred to you. It is helpful in the early stages of your trading to take careful notes. These will help you review the trade afterward to see what went right and what went wrong. Evaluating Mistakes in Your Trading We all make mistakes; it is what makes us human. Traders are no different and even the most experienced trader can slip up from time to time. As with most things in life, the trader who is able to learn from their mistakes will have a better chance of achieving future success. The key is being able to recognize what went wrong in a losing trade and develop the discipline to make sure that these mistakes are minimized or eliminated in the future.
- Jonas Taylor is a financial expert and experienced writer with a focus on finance news, accounting software, and related topics. He has a talent for explaining complex financial concepts in an accessible way and has published high-quality content in various publications. He is dedicated to delivering valuable information to readers, staying up-to-date with financial news and trends, and sharing his expertise with others.