Trading errors to avoid
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Trading errors are common among novice traders and often lead to partial or total loss of invested capital. Here is a list of the most common trading errors.
Having a trading strategy is having a course of action. This is what lets you know when and in which direction to open a position and at what level to place that position or your stop loss, when to take your profits. Etc. All this allows you to structure your trading and not leave room for improvisation.
You should only open a position if your trading strategy tells you to. Trading by intuition lets your emotions take charge, as do many bad habits that it is better to steer away from when trading.
A trading strategy is also risk management (money management). It tells you where to place your stop losses and when to move them. All you need is a trade without a stop loss to drag you into a destructive circle that will inevitably lead to the loss of your capital.
It is therefore essential to define your trading strategy. Without a strategy, you leave the field open to your emotions, to irrationality. This is one of the reasons why the majority of traders lose on the financial markets.
Some traders have found a trading strategy but allow themselves certain trades out of strategy. It's a habit to be banished! It is important never to deviate from your trading strategy.
It is often easy to follow rules when everything is going well, when your strategy leads you to winning trades. But any trading strategy generates losing trades, loss phases. This is where it's hardest to follow your trading strategy. The accumulation of losing trades often leads you to doubt your strategy, to question it.
It is for this reason that it is essential to test your strategy over a long period (first on a demo and then on a live account) to gain confidence in it. If you know that at the end of the month, your strategy generates performance, it will be all the easier for you to overcome loss phases.
Another mistake is to want to trade trades that are not part of your strategy. You detect a good opportunity but your trading strategy does not give you bullish/bearish signals. In this case, you should not open a position.
Following a strategy means taking into account all the trading signals it gives you but it also means not taking into account all the other signals!
Many novice traders seek to follow other traders' analysis to the letter. You can draw on other analyses to complement your own, you can use other traders' analyses to detect trading opportunities but these trading signals must be consistent with your trading strategy.
Copying a trader (using Social Trading or Social Technical Analysis) is not a solution. It doesn't help you to make progress with your trading. If you are dependent on signals from other traders, you will never be able to do an analysis, you will never be able to have your own signals. Suppose the trader stops publishing these signals, what do you do?
Reading an analysis also does not tell you how the trader manages his risk (where he places his stop loss, when he moves it), nor do you know when he cuts his position exactly. As a result, the trader could win and you could lose using the same analysis.
Moreover, there are now thousands of analyses on the net. Each trader has his own vision of the market. If you are not able to form your own opinion, you may quickly find yourself lost and no longer know what to do in your trading.
Many novice traders believe in miracles. They think that by paying for a trading signal service or using expert advisers, they will win without making an effort on the financial markets.
There are thousands of signal services on the net and many of them are scams. I suggest that you read the page: Trading signal providers: a scam?
Other traders prefer to pay expert advisers. I can find you a positive backtest that will make you want to buy it with any EA. Again, there are many crooks. Any EA is capable of generating performance over a short period of time but you need to constantly evolve the settings to be successful in the long run. There are reasons that large financial institutions pay a fortune to mathematicians to regularly evolve their trading algorithms.
I suggest that you read the page: Expert advisers and trading robots: Yes or No
Wanting to trade too much is opening too many positions and not being able to stop trading.
When you start trading, don't open too many positions at once. You must give yourself time to analyse your charts, to manage your trade well (by moving the stop loss well, by taking your profits at the right time, etc.). To give you more time, you can also trade on longer time units.
You must also be able to stop trading at any time. Some think that the more they trade, the more they will perform. In most cases, the opposite is true for a novice trader. Trading is a stressful and tiring activity. It requires concentration to avoid a lot of mistakes. Also, the longer you stay in front of the screen, the more likely you are to give in to your emotions. Acting according to your emotions is definitely losing your capital. So it is better to impose strict trading hours, set a pace, and get your body used to it.
The majority of novice traders want to get results quickly, earn money as quickly as possible. It pushes them to skip the steps to learn how to trade well. Becoming a good trader can't be learned in a few days, or even in a few months, it takes years!
Before anything else, it is important to assimilate the technical knowledge that is essential to any trader practising technical analysis (chart patterns, the principal technical indicators, etc.). If you don't have the basics of trading, you'll never be a good trader.
But be careful, knowing the basics doesn't make you a good trader. Only experience will make your trading successful. And experience is gained by making mistakes.
This is one of the paradoxes of trading. Almost all traders come to the financial markets to earn money but that is why they lose money. In trading, you don't have to think about earning money, you have to think about sustainability. The longer you last, the more you increase your chances to earn money in the long run.
This is a recurring problem for all novice traders. They establish a trading scenario but do not consider other possibilities. Let us suppose that you anticipate an increase in value but there is a price fall. What are you going to do? Will you still buy? Will you sell? Will you switch to another product? etc.
Other questions may be asked if you are already in position. What do you do if a correction occurs? Do you hold or close your position? When do you move your stop loss? Do you cut your position if your objective is reached? What do you do if a sudden movement occurs? Etc.
Before you open a position, you must be able to answer all these questions. Trading leaves no room for improvisation, especially if you are a novice trader!
Not foreseeing a scenario is exposing yourself to a surprising outcome that can lead you to making irrational decisions, and giving in to your emotions.
Not anticipating all possible scenarios also means depriving yourself of a lot of trading opportunities. Novices tend to focus on one direction (ex: long trades only)and stick to it no matter what. No, that is not trading. You need to determine levels at which you feel the opposite scenario is most likely to occur. If you anticipate buying and a support is broken, it might be better not to buy but to sell.
It is important to be able to adapt yourself in trading according to price changes. If your aim is to only see one scenario, you will inevitably end up losing all your capital one day or the other.
Not accepting being wrong is not placing a stop loss, it's moving a stop loss to avoid it being reached, and it’s refusing to admit that the scenario will not come to fruition.
The important thing in trading is not to be right or wrong, it is to be a winner at the end of the month. You may even be wrong more often than you are right and still manage to generate performance.
To accept being wrong is to accept losing. This means placing a stop loss and never move it in the opposite direction to your trade! This trading error is expensive for many individuals. On Forex for example, 50% of trades are winners, yet 90% of traders lose. Why? Simply no risk management due to a refusal to accept loss.
Accepting being wrong also means accepting that it is always the market that has the last word. It doesn't call into question the quality of your analysis. I am always deeply dismayed when a technical analysis is criticized, after the fact, when the opposite scenario has occurred. To say that an analysis is bad for this reason is not understanding what technical analysis is, what trading is! Technical analysis is based on probabilities, and it talks about probability, and about the percentage of chance that the opposite scenario occurs.
Novice traders often choose a single product on which everything will be played out. In other words, they are overexposed in terms of risk on one product. This behaviour can be found on stock markets where traders always favour a particular instrumentand bet a large part of their capital on it.
Never forget that the market always has the last word. No matter whether all the elements are in favour of going up or down, you should always consider the possibility of losing. How much does the trade cost you if it loses? Ask yourself this question on every line of your portfolio, your trading account. If an asset is disproportionate or the risk is too great, consider exiting your trade right away before you lose everything !
Not having a trading strategy
Having a trading strategy is having a course of action. This is what lets you know when and in which direction to open a position and at what level to place that position or your stop loss, when to take your profits. Etc. All this allows you to structure your trading and not leave room for improvisation.
You should only open a position if your trading strategy tells you to. Trading by intuition lets your emotions take charge, as do many bad habits that it is better to steer away from when trading.
A trading strategy is also risk management (money management). It tells you where to place your stop losses and when to move them. All you need is a trade without a stop loss to drag you into a destructive circle that will inevitably lead to the loss of your capital.
It is therefore essential to define your trading strategy. Without a strategy, you leave the field open to your emotions, to irrationality. This is one of the reasons why the majority of traders lose on the financial markets.
Not following your trading strategy
Some traders have found a trading strategy but allow themselves certain trades out of strategy. It's a habit to be banished! It is important never to deviate from your trading strategy.
It is often easy to follow rules when everything is going well, when your strategy leads you to winning trades. But any trading strategy generates losing trades, loss phases. This is where it's hardest to follow your trading strategy. The accumulation of losing trades often leads you to doubt your strategy, to question it.
It is for this reason that it is essential to test your strategy over a long period (first on a demo and then on a live account) to gain confidence in it. If you know that at the end of the month, your strategy generates performance, it will be all the easier for you to overcome loss phases.
Another mistake is to want to trade trades that are not part of your strategy. You detect a good opportunity but your trading strategy does not give you bullish/bearish signals. In this case, you should not open a position.
Following a strategy means taking into account all the trading signals it gives you but it also means not taking into account all the other signals!
Dependence on other traders' analysis
Many novice traders seek to follow other traders' analysis to the letter. You can draw on other analyses to complement your own, you can use other traders' analyses to detect trading opportunities but these trading signals must be consistent with your trading strategy.
Copying a trader (using Social Trading or Social Technical Analysis) is not a solution. It doesn't help you to make progress with your trading. If you are dependent on signals from other traders, you will never be able to do an analysis, you will never be able to have your own signals. Suppose the trader stops publishing these signals, what do you do?
Reading an analysis also does not tell you how the trader manages his risk (where he places his stop loss, when he moves it), nor do you know when he cuts his position exactly. As a result, the trader could win and you could lose using the same analysis.
Moreover, there are now thousands of analyses on the net. Each trader has his own vision of the market. If you are not able to form your own opinion, you may quickly find yourself lost and no longer know what to do in your trading.
Trust signal and EA sellers
Many novice traders believe in miracles. They think that by paying for a trading signal service or using expert advisers, they will win without making an effort on the financial markets.
There are thousands of signal services on the net and many of them are scams. I suggest that you read the page: Trading signal providers: a scam?
Other traders prefer to pay expert advisers. I can find you a positive backtest that will make you want to buy it with any EA. Again, there are many crooks. Any EA is capable of generating performance over a short period of time but you need to constantly evolve the settings to be successful in the long run. There are reasons that large financial institutions pay a fortune to mathematicians to regularly evolve their trading algorithms.
I suggest that you read the page: Expert advisers and trading robots: Yes or No
Wanting to trade too much
Wanting to trade too much is opening too many positions and not being able to stop trading.
When you start trading, don't open too many positions at once. You must give yourself time to analyse your charts, to manage your trade well (by moving the stop loss well, by taking your profits at the right time, etc.). To give you more time, you can also trade on longer time units.
You must also be able to stop trading at any time. Some think that the more they trade, the more they will perform. In most cases, the opposite is true for a novice trader. Trading is a stressful and tiring activity. It requires concentration to avoid a lot of mistakes. Also, the longer you stay in front of the screen, the more likely you are to give in to your emotions. Acting according to your emotions is definitely losing your capital. So it is better to impose strict trading hours, set a pace, and get your body used to it.
Wanting to earn money
The majority of novice traders want to get results quickly, earn money as quickly as possible. It pushes them to skip the steps to learn how to trade well. Becoming a good trader can't be learned in a few days, or even in a few months, it takes years!
Before anything else, it is important to assimilate the technical knowledge that is essential to any trader practising technical analysis (chart patterns, the principal technical indicators, etc.). If you don't have the basics of trading, you'll never be a good trader.
But be careful, knowing the basics doesn't make you a good trader. Only experience will make your trading successful. And experience is gained by making mistakes.
This is one of the paradoxes of trading. Almost all traders come to the financial markets to earn money but that is why they lose money. In trading, you don't have to think about earning money, you have to think about sustainability. The longer you last, the more you increase your chances to earn money in the long run.
Not anticipating all possible scenarios
This is a recurring problem for all novice traders. They establish a trading scenario but do not consider other possibilities. Let us suppose that you anticipate an increase in value but there is a price fall. What are you going to do? Will you still buy? Will you sell? Will you switch to another product? etc.
Other questions may be asked if you are already in position. What do you do if a correction occurs? Do you hold or close your position? When do you move your stop loss? Do you cut your position if your objective is reached? What do you do if a sudden movement occurs? Etc.
Before you open a position, you must be able to answer all these questions. Trading leaves no room for improvisation, especially if you are a novice trader!
Not foreseeing a scenario is exposing yourself to a surprising outcome that can lead you to making irrational decisions, and giving in to your emotions.
Not anticipating all possible scenarios also means depriving yourself of a lot of trading opportunities. Novices tend to focus on one direction (ex: long trades only)and stick to it no matter what. No, that is not trading. You need to determine levels at which you feel the opposite scenario is most likely to occur. If you anticipate buying and a support is broken, it might be better not to buy but to sell.
It is important to be able to adapt yourself in trading according to price changes. If your aim is to only see one scenario, you will inevitably end up losing all your capital one day or the other.
Not accepting being wrong
Not accepting being wrong is not placing a stop loss, it's moving a stop loss to avoid it being reached, and it’s refusing to admit that the scenario will not come to fruition.
The important thing in trading is not to be right or wrong, it is to be a winner at the end of the month. You may even be wrong more often than you are right and still manage to generate performance.
To accept being wrong is to accept losing. This means placing a stop loss and never move it in the opposite direction to your trade! This trading error is expensive for many individuals. On Forex for example, 50% of trades are winners, yet 90% of traders lose. Why? Simply no risk management due to a refusal to accept loss.
Accepting being wrong also means accepting that it is always the market that has the last word. It doesn't call into question the quality of your analysis. I am always deeply dismayed when a technical analysis is criticized, after the fact, when the opposite scenario has occurred. To say that an analysis is bad for this reason is not understanding what technical analysis is, what trading is! Technical analysis is based on probabilities, and it talks about probability, and about the percentage of chance that the opposite scenario occurs.
Focusing investments on one product
Novice traders often choose a single product on which everything will be played out. In other words, they are overexposed in terms of risk on one product. This behaviour can be found on stock markets where traders always favour a particular instrumentand bet a large part of their capital on it.
Never forget that the market always has the last word. No matter whether all the elements are in favour of going up or down, you should always consider the possibility of losing. How much does the trade cost you if it loses? Ask yourself this question on every line of your portfolio, your trading account. If an asset is disproportionate or the risk is too great, consider exiting your trade right away before you lose everything !
