3 biggest mistakes in trading and how to avoid them
There are so many mistakes that can determine your behavior in the market, I will try to list the 3 biggest ones based on my personal experience and how to avoid the same. Take advantage of my tips and suggestions that will surely shorten your path to succes and save you a lot of money.
- Too large quick loss
The biggest one of all is apsolutely to lose too much money quickly. Such a mistake will totaly disrupt your behavior after which you will make only furder mistakes, one by another with a total loss at the end. Such a mistake will cause you a so called “brain freeze”, after which you will not be even aware of what you’re doing. That mistake could be done with too large position mostly and that’s how you need to be very carefull with position size. My suggestion is that you never should open a larger position from 1:10 leverage when you start with your trading journey. That means that your largest position with capital such as $500 should be 0,05 lots or with $1,000 capital 0,10 lots, with $3,000 capital 0,30 lots, with $10,000 capital 1,00 lot, etc. This is the biggest numbers and I suggest that you trade with smaller positions from this ones, even with 50% smaller. If you have the possibility, the best way to do this is to open the trading account with max. leverage of 1:10. Why? From time to time you will lose control and be tempted to open a bigger position than you should and you will do that for sure, but if you have such a leverage in your account, you will not be able to do it. That’s how your loss could be acceptable in a range of 5 to 10% the most in single trade on daily basis. Except some wild days and huge volatility with big range, especially on gold, oil or indices, what could happen easy, but that’s why you have the SL (stop loss) which you need to use for an extra protection. Believe me, this will only save your money and shorten your journey to success. Trust me when I say, if you lose 50% of your account quickly, from 10 times, 8 times you will not be able to return the lost money. It will lead you to ruin your capital easy in total.
I know, you all want to make money quickly in forex, that’s why you are here the most, right!? Trust me, quick money in forex is possible, but after years and years in trading and a lot of invested/lost money. That’s why to short your way to that “quick money”, you need to go slow and carefully. I would say that 2 or 3 years of carefull and consistant profitable trading with low risk is not much and if you will be successful month by month with strictly determinated low target, you will succeed in forex quickly. When I say quickly, that is a period of 3 to 5 years. If you want to make a large money in one month when you start, you will not succeed, there is no way. You will lose once, twice and so on furder, month after month, after which you will lose all of your money and you will give up eventually. Most of you have done this already, I know that.
2. Wish or desire and your need
The second one of the biggest mistakes in trading is apsolutely your wish or desire to make exactly the amount of money which you want or need. That’s how you “force” the trade to do what you want while you are not aware that you don’t have the ability to move the market in your direction. Most of the time your trade could and will return back toward your entry easily and it will erase your entire profit, even it will make you a loss, what is a huge problem. Not to take profit and to make a loss from same trade in my experience, is the second biggest mistake in trading and that’s exactly what will happen if you trade based on your wishes. Becuase, if you have a wish, you will not react properly, you will just wait and wait for your trade to reach your desire, what can and will become a disaster.
Let’s say how your trade is $500 in profit, but that’s not enough because you “want” more, you “want” $800 or $1,000 because you think it will reach your TP (take profit). How many of you have experienced this? Many of you right!? And how many times the same trade has ended on zero or even in a loss? Hm, I believe many many times, am I right!? When that happened, what was your reaction? The first thing you felt was anger and then regret for the lost profit, right!? Soon after, you force yourself to make that profit again and you are saying, if I make $500 again I will close it. But, that’s not the market guys. You will easily make another loss and another after that. That first mistake will force you to make a couple of more in a row, just in desire to make a profit which you already had few hours ago. But that profit wasn’t enough for you in the beginning, right!? Well, instead of making $500 profit you’re now probably in loss of $500 or more. Then, when is too late you think how $100 is good profit, not to mention $300 or even $500 what you had, right!?
I know, this will and it did happend to you as well in such a situation. The market returned for a while and in a fear not to make a zero i even a loss you are closing the trade at, let’s say with $180 profit, but soon after the market returned back in your direction and even reach your desired target latter at $800, but without you. Hm, you’re angry as well, right!? You’re mad, huh, how market did fool you and you were right in a first place. Well, it will and it did happen to you for sure, but for how many times? More then a loss, I doubt that, right!? Anyway,don’t let that to happen by closing the profitable trades constantly when you have them. If you make 10 profitable trades in a row, you will think about that missing opportinuty. If you have only zeros or losses, that missed trade could ruin you even more.
How to avoid this mistake and not to regret of missing trade? I mean, you can’t move the market, right. That’s the first thing what you need to understand and if you have the profitable trade, protect the same on some level, $100, $250 or take the same in full at $500. You know how serious traders say, there is no bad profit, each one is good. Why? Because, profit will give you a self-confidence for a next trade, no matter how big that profit is. You will be satisfied after you close the winning trade and you will have the patience to wait for the another opportunity. There is no regrets and wishes; meaning if I were still in the market or I could took everything if I didn’t close the same. Well, forget that “IF”, same as in your life situations and missed opportunities. We all had them, but we can’t know the future and we can’t change the past. Accept what you have, accept your current situation and move on furder. Regrets or wishes will force you to make more mistakes, one after another.
3. Trading with borowed money or other people accounts
Most of you have lost and many of you will lose your entire invested capital in trading forex because of the mentioned first 2 biggest mistakes, I mean, that’s pure statistic. 90% or even more in my point of view is losing on forex and it will lose everthing. Some of you will become addicted and you think how you are aware of your mistakes after you made them. Then, some of you will think, well let’t borrow money from my family or friends and try again. The other ones will try to trade with other people accounts, with so called PAMM or MAM sistems. Why? How the Wolf of Wall Street said once, “cause you’re fucking addicted, that’s why”. It’s simply how the market affect on most of us.
Trust me, this is huge trap for you and if you didn’t solve the first two mistakes I wrote about, you will be in even bigger problems here. I must say how it’s much easier to trade with borowed money then trade for other peoples money, but both ways are very very hard. It requires a huge level of psichological stability, what most of you don’t have and will never have. I’ve expereinced some nasty things with MAM accounts, sometimes I think I should never tried that, but on the other hand, I learned a lot from it to be honest.
Danger in trading with borowed money is when you start to lose, as well as when you trade with your personal money. But here is the much bigger psychological pressure on your back, cause you know that you need to return that money to your family or friends. If you lose 50% of the borrowed money, you’re in huge trouble and it will be almost impossible to return the same. If you did this, you simply didn’t overcome this first 2 mistakes. It’s the same issue. Go slow!
Those who decide to trade for others and from the beginning you are in that position becuase you could not made money by trading for your personal account, think this good true. The investor will follow what you do and if you made profit everything will be ok, but when you start to lose and you will eventually, you will find yourself in big psychological problems. Some of them will surely ask from you to return the lost money personaly and you will have the moral obligation, not by law, to return that, especially if you know the investor personaly. That will cause you a huge problems in trading, it will look like there is no end with problems. Try to avoid this anway you can, trust me, it’s better to trade with your personal $1,000 instead of investors $50,000. It’s much easier and you will make a better profit eventually if you can avoid this first 2 mistakes written above. If you want to trade for others anyway, becuse you see yourself in this business professionally in a few years, then you must have a strict rules, on which investor must agree written. He need to accept the strictly determined eventual loss and when you reach it, you need to stop with trading. My suggestion is that you find a broker who have automatic system which have such a parameters for investors to choose and to accept. Even much better system is when you simply don’t know who the investors are and everything goes automatically. Let the investor decide the rules by him self. You will be clear minded that way and relaxed to trade like that much better.
I wrote about this issue 2 years ago and in that article is a story from one of the greates traders Mr.Bill Lipschutz as well, who had the same problems. It’s worth to read as well, go here >
How to avoid this mistakes? Don’t make first two mistakes!
I would love to hear your view and your toughts on this issue and everything I wrote here. Feel free to share it with me and my readers.
Very informative article..! Thanks for sharing