Financial markets trading is growing in popularity in all corners of the globe in recent years and it is likely you will know someone who has embarked upon their journey.
For those who “get it right” there are many advantages including an additional income stream, flexibility and, in some cases, tax-free winnings from the market.
When you begin your trading journey, you will make mistakes. As harsh and hard as this may sound, it is the truth, and it is important to be aware that you aren’t going to be an exception, but instead you’ll be the rule. In fact, it happens so often right at the start that over 90 percent of first-time traders choose to give it all up and never trade again.
But there is something you can do to prevent this from happening if it hasn’t already, and stop it from happening again if it already has. It’s quite simple: you need to know what the differences are between those who are successful in their trading endeavours and those who aren’t. Knowing this small but vital piece of information will lead you down the right path, and help you to make more of your trading portfolio.
Let’s look at the main mistakes that new traders make; the ones that make people choose to quit trading altogether. Then let’s look at how to avoid the errors, turning trading into something you can enjoy and reap plenty of rewards from.
Trading Plan? What Trading Plan?
Think of all the times you’ve done something in your life that you planned for in advance, and then think of all the times that you did something that was unplanned. The latter may have been fun, but fun won’t make you successful when it comes to trading. A plan is what will make you successful, so a plan is what you need.
A trading plan is essential for successful trading because your trading plan is how you establish a good routine. It’s where you’ll find your entry strategies. It’s where you’ll start to understand your risk criteria and what you are willing to do – and not do – to trade well.
Some newcomers to trading feel that they can rely on their instincts, and that gut feeling alone is going to see them through. Although over time you can get a feeling about certain trades, even the most dedicated and experienced traders aren’t going to use this alone to secure a deal.
And when you’re just starting out, ‘gut feeling’ is as good as guessing. You are gambling, not trading. So a trading plan and everything that it can help you with, should be there from the beginning.
Being a good trader means being a disciplined trader, and this is where many newbies come unstuck. Being disciplined might not be exciting (or at least it might not sound exciting), but it is crucial for good trading.
When you are a disciplined trader you will know when you can trade and when to stay away from doing anything at all. This is massively important, and will save you from trading just because you want to. Want has nothing to do with a good trade. You need to be disciplined so that you stick to your plan and only trade when it makes sense. Trading for fun, with no plan, and just because you feel like it might work every now and then, but for the most part you will lose and lose big.
Amateurs are effectively so afraid of missing out on trading that they will pick any trade, even if it makes no sense. This is a mistake, but one that, if you are disciplined, you will soon stop doing.
Too Much Risk
After a few wins, amateur traders might get blasé about their results, and start to risk more and more money on each trade. It could easily – and quickly – get to a point where their entire portfolio is at risk. This is a huge mistake and something that can force new traders to stop trading because they use up all of their money and have nothing left to use.
A successful trader will have a protective stop loss in place, for example, so they know exactly when to shut down their trades (and it can happen automatically when they have everything set up correctly). Stop losses can be scary things for new traders.
They might not be completely sure of how to use them, or they might think that if they get it wrong and the market rallies that they’ll miss out on a great result. But stop losses are essential. They are what make the difference between success and failure a lot of the time, and experienced traders will use them and trust them. Click here for more details on risk management.
Do It Yourself
There are many things in life that you can learn by yourself. You can use books, perhaps videos, you can research and get all the information that you can until you are sure that you can make a good start.
Trading, no matter what new traders might think, is not one of them.
This mistake – believing that they can learn everything they need by themselves and then automatically make a success of things – is one that can cause a lot of problems, and it’s no wonder that those who go down this route are most likely to give up altogether. It’s not working, they lose out on lots of trades, and they walk away.
It’s far better to find some help when it comes to learning how to trade. Just as you would if you wanted to learn how to drive, or how to swim, or how to become a doctor or a lawyer.
Learning at home is a good start, and it’s great at keeping you up to date with everything that is happening in the trading world, but it’s not enough on its own. Truly successful traders will always look for additional training. Look for experienced traders and mentors who can help.
Some traders begin their trading life with some very high expectations. They think they are on a get rich quick scheme that will give them lots of money almost overnight. They might have this idea from their own thoughts on what trading is really like, from movies, or perhaps from advertising – it can all seem very seductive.
But trading is a long game, and successful traders understand this and are willing to wait for their results to come in. This means that you need to be patient and determined. You need to be willing to learn, and to accept that losses will come your way as well as wins. You need to take calculated risks and not over-extend yourself.
Although the vast majority of new traders walk away from trading relatively soon, that doesn’t mean you have to be one of them. Make a commitment to learn from established traders and be prepared to have any preconceived ideas challenged.
Find a well-established mentor or take an accredited online trading course – click here for more details. You can be part of the small but successful set of people who take their trading seriously and know which mistakes to avoid in order to become successful. Take your time, learn as much as possible, ask questions and start slowly. You’ll get there in the end and you won’t have to suffer major losses to do it.