Trading is like anything else in that it requires learning and practice in order to be successful. Just like starting a new job, beginning to trade can be difficult. Of course, like with anything else, if you have a plan, you are more likely to succeed, and if you are aware of the common mistakes that beginner traders make, you are more likely to be successful in avoiding them.
- Jumping Right in Without the Education – Like any job, you need to learn the ins and outs before you begin. There is a lot of learning material in the form of books, online articles, blogs and tutorials available, many of them for free and it is worth your while to spend time reading through as many of these as you can before you begin. Focus on the factors that impact the market, trading strategies that are available and what makes a successful trader.
- Thinking You’ll Make Quick Money – Just because many people are trying their hand at trading, doesn’t mean it is simple or an easy way to make quick money. Most beginner traders lose at the beginning and this is perfectly normal, but if you think that won’t happen to you then you are likely to fail. Making money from trading requires time and patience. The best way to succeed is to make a plan and stick to it.
- Not Being Fully Prepared– This is related to the mistake of thinking that making money from trading is simple. Beginners often jump right in, thinking they will get a feel for trading as they go – kind of learn on the job. However, this is a recipe for failure and is more likely to result in you depleting your capital before you get that magic feel. Before you begin, you need to spend time on preparation. Start with the education mentioned above, but then move onto your trading strategy. This is vital and requires time and testing to ensure it will work for you.
- Averaging Down – This can often go hand in hand with allowing losses to mount. Averaging down is when a trader keeps adding to a losing position in the hopes of redeeming their losses. Unfortunately, what most commonly happens is that the losses mount until the trader needs to cut the entire position when the magnitude of the loss is much more significant. Knowing when to cut your losses and move onto a new trade is very important, but is often a skill that is gained with experience.
These are just a few of the common mistakes that new traders make, but they are significant. Being aware of these mistakes may help a beginner avoid them and therefore be more successful in the beginning. The most important points and the one that encompasses many of these mistakes is the need to be prepared – whether it is with knowledge, understanding your own trading personality or developing a trading plan, this preparation will help all traders avoid making mistakes as they go.