The Worst Mistakes Beginner Traders Make

[mortijoon]

Traders generally buy and sell securities more frequently and hold positions for much shorter periods than investors. Such frequent trading and shorter holding periods can result in mistakes that can wipe out a new trader's investing capital quickly. Here are the 10 worst mistakes made by beginner traders:

 

Letting losses mount

One of the defining characteristics of successful traders is their ability to take a small loss quickly if a trade is not working out and move on to the next trade idea. Unsuccessful traders, on the other hand, get paralyzed if a trade goes against them. Rather than taking quick action to cap a loss, they may to hold on to a losing position in the hope that the trade will eventually work out. In addition to tying up trading capital for an inordinate period of time in a losing trade, such inaction may result in mounting losses and severe depletion of capital.

 

Failure to implement stop-loss orders

Stop-loss orders are crucial for trading success, and failure to implement them is one of the worst mistakes that can be made by a novice trader. Tight stop losses generally ensure that losses are capped before they become sizeable. While there is a risk that a stop order on long positions may be implemented at levels well below those specified if the security gaps lower, the benefits of such orders outweigh this risk. A corollary to this common trading mistake is when a trader cancels a stop order on a losing trade just before it can be triggered, because he or she believes that the security is getting to a point where it will reverse course imminently and enable the trade to still be successful.

 

Not having a trading plan or sticking to one

Experienced traders get into a trade with a well-defined plan. They know their exact entry and exit points, the amount of capital to be invested in the trade, and the maximum loss they are willing to take, etc. Beginner traders may be unlikely to have a trading plan in place before they commence trading. Even if they have a plan, they may be more prone to abandon it than seasoned traders if things are not going their way. Or they may reverse course altogether (for example, going short after initially buying a security because it is declining in price), only to end up getting "whipsawed."

 

Averaging down (or up) to redeem a losing position:

Averaging down on a long position in a blue-chip may work for an investor who has a long investment time horizon, but it may be fraught with peril for a trader who is trading volatile and riskier securities. Some of the biggest trading losses in history have occurred because a trader kept adding to a losing position, and was eventually forced to cut the entire position when the magnitude of the loss made it untenable to hold on to the position (or alternatively, because his bosses discovered the true extent of the trading loss). Traders also go short more often than conservative investors, and "averaging up" because the security is advancing rather than declining is an equally risky move that is another common mistake made by the novice trader.

 

Excessive leverage:

According to a well-known investment cliché, leverage is a double-edged sword, because it can boost returns for profitable trades and exacerbate losses on losing trades. Beginner traders may get dazzled by the degree of leverage they possess, especially in forex trading, but may soon discover that excessive leverage can destroy trading capital in a flash. If leverage of 50:1 is employed - which is not uncommon in retail forex trading - all it takes is a 2% adverse move to wipe out one's capital.

 

Trading too frequently:

Overtrading can erode returns to the point where nice profits turn into significant losses. While experienced traders have generally learned the hard way that trading too frequently can be severely detrimental to overall returns and performance, new traders may have yet to learn this lesson.

 

Following the herd

Another common mistake made by new traders is that they blindly follow the herd, and as a result they may either end up paying too much for hot stocks or may initiate short positions in securities that have already plunged and may be on the verge of turning around. While experienced traders follow the dictum of "the trend is your friend," they are accustomed to exiting trades when they get too crowded. New traders, however, may stay in a trade long after the smart money has moved out of it. Novice traders may also lack the confidence to take a contrarian approach when required.

 

Shirking homework

New traders are often guilty of not doing their homework or not conducting adequate research before initiating a trade. Doing homework is critical because beginner traders do not have the knowledge of seasonal trends, timing of data releases, and trading patterns that experienced traders possess. For a new trader, the urgency to put on a trade often overwhelms the need for undertaking some research, but this may ultimately result in an expensive lesson.

 

Trading multiple markets

Beginner traders may also flit from market to market, e.g., from stocks to options to currencies to commodity futures, to name a few. However, trading multiple markets can be a huge distraction and may prevent the novice trader from gaining the experience necessary to become a specialist and excel in one market.

 

Overconfidence or hubris

Trading is a very demanding occupation, but the "beginner's luck" experienced by some novice traders may lead them to believe that trading is the proverbial road to quick riches. Such overconfidence is dangerous as it breeds complacency and encourages excessive risk-taking that may culminate in a trading disaster.

 

In Summary

Trading can be a profitable endeavor, as long as the trading mistakes mentioned above can be avoided. While traders of all stripes are guilty of these mistakes from time to time, beginner traders should be especially wary of making them, as their capacity and capability to bounce back from a severe trading setback is likely to be much more restricted than with experienced traders.

[myregister]

The worst mistake that a trader could do is actually that they are underestimating the market movement, or i can say everything about forex including how to manage the risk inside. That is the worst one and what each newbie should avoid i suggest to read more and more forex material will be helpful

[pepy]

The worst mistake that a trader could do is actually that they are underestimating the market movement, or i can say everything about forex including how to manage the risk inside. That is the worst one and what each newbie should avoid i suggest to read more and more forex material will be helpful

Well to some points that is true, underestimating the market only lead to more losses but it is not always the case because sometimes we are really sure and does not underestimate the market yet still lose our money. I don't know but it is in few cases happening to me.

[myregister]

That is why i included it because not only me but there are a lot of traders who share the similiar view about that and also experienced it before. Underestimate the market even it is totally calm or volatile are bad idea, to counter that a trader should have realistic view and also accurate indicator to make proper analyzation.

[pepy]

Well you are right there, underestimate the market is what beginner mostly do since they are such a bunch of overconfident trader who think they might conquer the world. I personally think that it is the effect of our emotion, and this is why trader with uncontrollable emotion as the worst trader ever.

[myregister]

One of the worst thing that trader made is their emotion which they can't control, if they can control it shouldn't be such a big issues for them and all we know is that they can make profit without make themselves questioning their skill. Also never against the trend just follow it and don't make random analysis.

[pepy]

Controlling emotion to me like playing with fire, it is better if you learn from forex robot how to eliminate emotion and remain calm and use your own analytical thinking only to predict the market's trend based on your indicators such as news or candle maybe that you use as the base for your analysis.

[myregister]

And why it should be like fire? Nothing wrong with able to get few portion of greed or fear and then control them, with that you may able to optimize your profit chance, Being greedy in control doesn't mean you trade like someone who don't know stop but trying to make more profit with take risk intelligently.

[pepen supendi]

the worst mistake have been trader make, is when trader get a many loss, but the money didn't from his/her own money, trader has borrow from other person for money injection for him/her self trading. and the trader can not return the money to the person. thats fault for reckless trader many cost have to pay back 

[myregister]

I think excessive leverage is the most less noticable reason or mistakes of many newcomers do. Many traders think use higher leverage would help them to reach more lot size with lesser capital, but overleraging just bring more demise since it is hard to control from psychological side.

[bigxy]

I guess the traders should keep patience while trading, they should not over trade and always start with small amounts in the beginning. They may also start taking calculated risks and moreover they should keep their emotions aside as emotions can lead to major losses.

[novarisa]

I guess the traders should keep patience while trading, they should not over trade and always start with small amounts in the beginning. They may also start taking calculated risks and moreover they should keep their emotions aside as emotions can lead to major losses.

 

And that is RM (Risk Management)

We should train this kind of management, at least we're doing it without risking our own money in demo account (for the sake of training). Or you may want to train it better in real account.

[Superforex]

We actually have an article that doesn't quite explore the same things, but could be potentially useful to people who are just getting started with trading

[o_vadim]

I remember having this friend of mine, who tried trading back then. Well, he even exceeded everything mentioned here to fail. we started together. Now I trade and manage accounts, and me got back to his insurance stuff. So you never know, you never know)

[pepy]

The key is to control your trading so well that you may lowering your chance to lose. Some people fail simply becuase they are too much greedy or forget their own trading rules or even doesn't even know how to get profitable trading. Just spend their own time onto something they can do i suggest demo account for this case.

[myregister]

And that is RM (Risk Management)

We should train this kind of management, at least we're doing it without risking our own money in demo account (for the sake of training). Or you may want to train it better in real account.

For newbie that thing is time consuming and somewhat complex. What you should do is to make it like important and innovative or simple if you can. Just say spend like this for this kind of amount you have in your capital. The other mistake is misunderstand the demo account, i don't know how to solve this but my advice you should force them in.

[pepy]

For newbie that thing is time consuming and somewhat complex. What you should do is to make it like important and innovative or simple if you can. Just say spend like this for this kind of amount you have in your capital. The other mistake is misunderstand the demo account, i don't know how to solve this but my advice you should force them in.

About the demo account the best thing you can do is by asking them to do that , forcing it would be very good but not like what you are all thinking here, it may lead to people feel boring about forex and i don't know what will happen later. The material you should say must be simple because they are just newbie at all, right?

[myregister]

I remember having this friend of mine, who tried trading back then. Well, he even exceeded everything mentioned here to fail. we started together. Now I trade and manage accounts, and me got back to his insurance stuff. So you never know, you never know)

There must be reasons behind his loss, would you mind to share here? Basically what i see from beginner mistake is all about emotions, if that is not about emotions then that is about they don't have enough experience to deal with the volatility of forex especially in how to manage your trading's risk.

[Vaabum]

Unfortunately, at the initial stages, traders make a lot of mistakes. When I started working with a broker from ExpertOption, I used a demo account for training in order to solve all such moments.

[Dora Wi]

The original poster made really good points. I would also add that it is important to know your own limits mentally and emotionally so that you only trade when you are up to the task.

Demo accounts are also a good idea - they can help you make mistakes and figure things out slowly without losing money.

[Vaabum]

Unfortunately, traders always make mistakes, not only at the beginning of their journey. It is important to analyze these errors and try to minimize their impact on the results of work.