10 Errors of the Beginner Trader
In this article we present 10 mistakes of the beginner trader that are repeated more frequently. Actually these errors are committed by any trader, from beginners to veterans. It does not matter how much time you have in the market; from time to time lapses of indiscipline will be experienced, either due to extreme conditions in the market or due to emotional factors. It is vital to know how to recognize and understand these situations in order to be successful in trading.
- Cut the Profits, Let the Losses Grow
By far the most common mistake when investing in Forex is to hold losing positions for a long time and to close winning positions very early (out of fear). Although there is a greater record of winning positions, the losers, although less, will represent a greater amount of money.
The key to limit losses is to follow an operations plan that considers the risks and always use a stop loss. No one will be right all the time. The sooner you accept that having small losses is part of the day to day, the more time you have to refocus and get winning trades.
- Operate without a Plan
Opening a position without a concrete plan is an invitation to the market to take our money. If the price moves against the position and you do not have a plan, you will not know with certainty when to cut the losses. If the price moves in our favor, we will not know when to collect the profits. Making these decisions in the heat of having open positions is a good invitation to disaster.
Operating with a plan is perhaps the most important step that a Forex trader can perform, since it tries to eliminate the emotional part to a great extent when it comes to making trading decisions.
- Operate without a Stop-Loss
Operating without a stop loss is also a recipe for disaster. This is how a small and manageable loss can end up blowing up an entire account.
Using a stop loss is a vital part of a well-crafted plan that has specific and realistic expectations based on previous analysis and research. The stop loss indicates when a certain strategy is invalidated.
- Move a Stop-Loss
Moving the stop loss to avoid being taken out of the position is almost the same as investing without a stop loss at all. It indicates that there is a lack of vital discipline, which will unequivocally result in losses in most cases.
The exception to the rule that allows a stop loss to be moved is when it is made in the winning direction, to consolidate benefits that are being recorded in the position. Never move the stop loss in the losing direction.
- Over-invest
There are two ways to Over-invest.
Investing too often in the market: Investing too often suggests that something is always happening in the market and that you always know what is happening. If you have open positions on a constant basis, you are also constantly exposed to market risks. It is better to focus on finding optimal and strong opportunities, where the risk is lower and where a well-prepared plan and strategy can be applied.
Keep many positions open simultaneously: Having too many open positions at the same time is an indication that you probably do not have a good plan of operations and many of them are opening instinctively without control. Many open positions also affect the margin available, making it more difficult to maneuver in difficult market situations.
- Over-Leverage
Over-leverage refers to holding very large positions with respect to the margin available. Even a small market movement can be catastrophic in a very large position for the margin available.
This common mistake is made more tempting because of the generous leverage levels offered by online brokers. If a broker offers leverages of 1: 100, 1: 200 or even 1: 500, this does not mean that they should be used. Do not base your positions on the maximum available leverage.
The positions must be based on factors specific to the operation, such as proximity to specific technical levels or confidence in any specific signal to open a position.
- Not Adapting to Changing Market Conditions
Market conditions are always changing, which means that the strategies you use must be flexible. Always analyze the current market situation using technical analysis, to determine if it is fluctuating or is in a trend.
Likewise, the use of technical indicators must be flexible. No indicator works well all the time. Different indicators and strategies should be used depending on market conditions. Some indicators work well in markets that fluctuate, and others work better in markets with more pronounced trends.
- Not to be Pending of Important News and Events
Even for those traders who rely exclusively on Technical Analysis for their operations, it is essential to be aware of the main news and events in the market.
If at certain time certain indicators are indicating the existence of a very good opportunity to open an operation, but in half an hour is expected an important news that can move the market significantly, it would be unwise and very dangerous to open that operation. This type of situation is what can happen if you are not aware of events and news.
Always have at hand the economic calendar and identify those events with greater importance that can affect your open positions.
- Invest to the Defensive
No trader wins all the time. Some of the best traders even lose more times than they win. But when they lose, they lose little.
After a series of losses, it is better to wait a while for the market situation to stabilize and refocus on new opportunities. You must avoid falling into the mistake of investing defensively and trying to recover or avenge losses.
- Having Unrealistic Expectations
No one is going to retire with the result of a single operation. The key is to achieve gains as experience is gained. It must be flexible and be able to adapt to market conditions. It's a bad idea to have goals in the beginning about how much money you're going to earn. By having expectations about specific amounts, and being in a position where those expectations have not been achieved, it is very common to be tempted to open larger operations to achieve the goal. In the end, the result will be a greater loss.