Whether you’re starting a new job, joining a new group of friends or taking up knitting for the first time, there is always an awkward “feeling it out” period. You know what you need to do, but you haven’t figured out the best way of doing it yet; and you’re going to make mistakes.
It’s no different than learning to trade. Beginners tend to get into the game without any idea of what they’re doing, and they end up getting frustrated at their progress and giving up. There are lots of mistakes that new traders make, but there are five major mistakes that you should absolutely avoid.
1. Trading Without Education
You wouldn’t start a business without taking some finance classes, and you wouldn’t pilot a prop plane without learning how aviation works…So why would you trade without learning the proper way of doing it?
Getting a proper education on the factors that affect market movement, the trading strategies that professionals use and the ways to mitigate your risk while trading is the difference between a successful trader and a market failure.
2. Trading With Emotion Instead of Logic
It’s easy to let emotions run wild with something as exciting as trading options. Netting a big win can propel you to place more money than you should in a trade. On the other hand, losing money can anger you to the point of giving up altogether.
It’s important to trust the logic and system you were taught by your trading mentors
(see Mistake #1).
Here’s a tip: Before trading with actual money, set up demo accounts and take the time to pretend making the trades you want. Keep track of your investments and after a set period of time analyze how much “money” you started with and how much you “have” now. This prepares you to trade without feeling too emotional over a win or a loss.
3. Thinking That Trading has Anything to do with Luck
The market’s exact movements will always be unpredictable, but it never does anything randomly, or by chance. The market reacts to outside factors in a predictable manner.
Learning how to follow the indicators gives you the confidence to predict how the market will react to those indicators and accelerate your profits.
4. Thinking That Losing is a Negative
Piggybacking off of Mistake #2, thinking that you’re going to win every trade you place is a false way of thinking and can quickly lead to you giving up.
It’s a matter of life that you aren’t going to be successful at everything you do, and every trader (yes, everyone) has lost a trade in their lives.
Losing a trade doesn’t mean you’re a failure, it just means that the market didn’t behave as you thought it would. The truly successful traders are the ones that take the losses on the chin, and work hard to ensure that for every loss they have they make two wins.
Mistake 5: Assuming You Know Everything About Trading
No matter what you do in life, you should always be learning.
I can guarantee you the most successful business person you can think of is still learning about business, the greatest basketball player in the world is learning how to shoot better and the best guitar player is learning new note combinations. The same principle applies to trading.
You should always be taking classes, reviewing notes, watching the experts and trying to find more information about the market and its trends. When you stop looking to learn, you stop looking to profit.