20+ Common & Biggest Trading Mistakes Which Make You Fail

top common trading mistakes

Trading is not like gambling (here we explain why). It is not as simple of opening a trade and watching yourself become a millionaire within a few days.

While this is an exciting business to be in, we have seen many people make simple mistakes that have cost them dearie. A common problem with the industry is that you can make good money only for you to lose it within a single trade.

It is a business, just like any other, that requires constant learning, practice, and discipline. The learning process is crucial for novice and experienced traders alike.

Day traders, especially the newer ones, make many mistakes. But most of them can easily be avoided! Even at Real Trading, we have seen many traders exit the game because of some of these mistakes.

In this article, our focus will be on the common mistakes that traders make and how you can avoid them.

#1. Failing to treat trading like a typical business

For most novice traders, trading is all about getting acquainted with the latest news, deciding on whether to take a short or long position, and subsequently getting hefty profits. They simply take it as a less serious thing.

Unfortunately, it doesn’t always work like that and day trading is something far more complicated. You can conduct a comprehensive fundamental and technical analysis and still incur large losses. And if you don’t take trading as a business, you will often make mistakes.

Here are some hints that can help you look at trading in the right way.

Train with a demo account

To start with, trading on a demo account for a considerable amount of time will help you understand the intricate details of trading. It is also important to note that all traders, including the most seasoned ones, experience certain pitfalls in trading.

Foresee shortcomings

Just like any other business, your focus should be to guard against the shortcomings that are likely to occur. As a trader, you have invested your funds and time in the business.

For this reason, put in some extra effort to ensure that your investments pay off. Trading is not a get-rich-quick scheme.

Find a trading routine that works for you. A watchlist and evaluation of the mistakes you made in the previous trade should be part of that trading process.

Manage your time

Manage your time well. If you have a shop in the street, you will always open it in the morning and close it at the end of the day. Always be discplined and have a routine.

#2. Set unrealistic expectations

Almost everyone dreams of getting rich quick. When it comes to the trading business, you can’t afford to have unrealistic expectations.

Some people don’t want to make less money and let it grow. As such, they open large positions hoping that everything will work out fine.This is a mistake which you must avoid!

Being a fulltime trader means you fully depend on trading to cater for your bills and sustain your lifestyle. Such a scenario will make you trade haphazardly as you strive to make a specific amount of money in a trade.

Instead, the key to being a successful trader is discipline and sticking to your trading strategy.

Avoid economic hardship

For a beginner, it may be helpful to have a part-time job before you are able to make a decent living from trading. With that, you will have taken away the pressure to make a certain amount of money in a single trade.

That’s because, as fun as day trading is, it is still a risky business. Indeed, many people who start their trading careers fail. More than 80% of them fail within their first months.

Therefore, if you have a stable job, we recommend that you start the shift to becoming a day trader gradually. This simply means that you should first focus on your job that brings you money as you trade part-time.

Related » How to Trade Part-Time When You Have a Full-Time Job

Furthermore, in day trading, you eat what you kill, meaning that there is no salary at the end of the month. You will only make money that you generate from the market.

Fortunately, you can do your job and day trade simultaneously because many trading platforms offer mobile apps to trade. You can access these apps wherever you are.

Take advantage of extended hours

When the markets close, a trader doesn’t necessarily have to stop trading. This is thanks to after hours. Of course, there are many more limitations than standard hours, but it is an option to consider if you want to familiarize yourself with the markets little by little.

Avoid Scaling up too fast

With reference to this trading aspect, the rule for any trader is that you should never scale up based on a one-off scenario. For instance, the value of a company’s stock can rise from $10 to $50 in a day.

It would extremely risky, and irrational, to increase your leverage based purely on the day’s market conditions and the results of a trade.

The way to avoid this trading mistake is by keeping and following a detailed trading journal. The information in your journal will help you identify a trend, or lack thereof. Subsequently, you can use the collected data to decide if you should scale up in your next trade.

#3. Expecting to be perfect

A common mistake that many day traders make is expecting to be perfect. After going through months of preparation and studying, they expect to open trades that are always profitable. In reality, this rarely happen, even to experienced traders and investors.

There are many examples of experienced traders who have made serious mistakes.

Example of failures (pro traders)

A good example is Bill Huang, an experienced trader and billionaire who worked for Tiger Global Management, the well-known hedge fund. In 2021, his overleveraged trades led to a significant loss in the market as investment banks activated their margin call. This led to banks like Nomura and Credit Suisse losing more than $6 billion combined.

In this instance, an experienced trader with billions of assets was not affected.

Bill Ackman is another famous hedge fund manager who lost billions of dollars after his bet on Valeant Pharmaceuticals failed.

Therefore, as a trader, always remember that you will never be perfect. Not all trades will go your way. Therefore, you need to take some actions to prevent these challenges. For example, always size your trades well, have a stop loss, and be ready to change your mind.

The quest for this perfection brings with it other problems.

You risk burnout

This is a situation where you spend a lot of time staring at charts that you forget about the benefits of taking a rest. When you are in a situation of burnout, you will likely make bad decisions!

A good way to address this issue is by proper scheduling. This is a process where you set a specific period of time where you will be trading.

You also should remember that every trade exposes you to some form of risk. As such, you should do your best to open a few trades as possible every day.

Top Times You Should Stay Out of the Market

You have too much confidence

It is ridiculous to be a trader who is not confident in what you are doing. By being confident, you will be ready to buy assets that everyone is selling and vice versa.

However, being overconfident is not recommended. By being overconfident, you will not be at a good place to exit trades that are not working out.

In several occasions, you might find yourself being overconfident and risking a large percentage of your account. For example, you might find yourself risking more than 20% of your account per trade. To avoid this issue, We recommend that you set a rule of never risking more than 5% in every trade.

Therefore, always be flexible in your trading.

Related » Trading Performance: top Ignored Factors that could affect it

#4 Trivial mistakes

Failure to keep quality records

As mentioned earlier in this article, trading is a business just like any other. A trading journal is a crucial tool for any trader.

Success in this profession does not come without a comprehensive level of learning, practice, and planning. Your day should end with you evaluating how you traded and why you made those specific decisions.

The journal will help you track your progress and learn from the mistakes you made when entering/exiting a trade. Subsequently, you will be in a position to adjust your trading strategy accordingly.

This is an important method of knowing whether there is any growth. Also, it will help yo u identify the common mistakes that you do and how you can avoid them.

Forgot to Identify your strengths and weaknesses

In addition to developing a profitable framework, a trading journal is also essential in identifying your strengths and weaknesses and keeping your emotions in checking. This toll will also help you stay clear of trades that you are unsure about.

A detailed trading journal includes all the relevant information including:

  • Order type
  • Your reasons for entering or exiting the trade
  • Market conditions during the trade
  • Length of the trade
  • Size of the trade
  • Outcome of the trade

Opening a Trade Without any Analysis

Many new traders take trading as gambling, but the fact of the matter is that you can’t open a trade without doing any analysis and expect to make money constantly.

You should always ensure that all of your trades are justified by both fundamental and technical reasons. At the beginning, this will be tough. However, once you have mastered your art, you will make money on a constant rate.

Becoming a successful trader takes time and analysis is part of it.

Trading Before and After Data Release

There are two facts you need to know. One, after the release of major news, there will definitely be major movements in the respective currencies and commodities. For instance, if the non-farm payrolls increase in the US, chances are that the dollar will gain.

The second fact is that there is no one who can forecast the numbers accurately. Therefore, one of the biggest mistake you can ever do is to trade right before and after the news.

If you believe in your betting instincts, then you should always use very small lot sizes.

Applying what happened yesterday today

Another common mistake that many day traders make is to apply what happened in the market yesterday..today.

Perhaps, you made some money shorting a stock on Monday. You should not assume that the same thing will happen on Tuesday. In other words, the market is usually a dynamic place where things change regularly.

You can avoid this by looking the market with different lenses every day. If you made a big profit yesterday, remember that the situation can change and you can make a big loss today. Also, remember that what made you money yesterday could lead to a big loss today.

Abandoning a trading strategy too fast

It is common for a trader to exit a trade after a small loss or win before reaching the set stop loss/take profit. In most cases, you will end up regretting the move as the market gets to your initial target.

Trading psychology or an unreliable trading process are some of the reasons why traders abandon their strategies too fast.

To avoid this mistake, identify an apt exit strategy and stick to it at all time. A trading journal, coupled with the set-and-forget trading strategy will also help in sticking to your trading process.

Related » Watch out for these emotions. They could destroy your trading account!

#5 Strategical mistakes

Don’t have a business plan

Every successful business has a working business plan. What are you going to trade? How much money do you have to invest in your business? Do you have the right equipment? Do you have the right training? What specific goals do you have for your first year? How will you measure your success?

When you determine the answers to these questions, you can develop a real business plan to start your trading company.

If you don’t know which type of trader are you, and want to trade different currency pairs, different commodities, and equities, surely you will fail. Because this is not only brain draining but it is also inefficient!

The fact is that you can make money by just trading one currency pair, you don’t need to be an expert in everything.

No Action Plan & Risk Management

Once your business plan has been established, now you can create an action plan. A good action plan sets the stage for your daily trading. For example, establish the details on how you’re going to trade.

Do you know what signals to look for? Are you sure about entering a position or why you’d want to close one?

When you understand ahead of time what you will do with certain market opportunities, then you can avoid panicking like many unsuccessful traders.

Understimate the importance of having a Stop Loss

To prevent many problems from happening, you should always have a stop loss for your trades. A stop loss is a tool that stops your trades when a certain level is reached.

For example, if you have bought the EUR/USD pair at 1.1200, your hope is that the price will move up. If the price moves lower to say 1.1150, you can place a stop loss at 1.1145. This will always ensure that you don’t make more losses than you can handle.

Risk management is also essential to succeed. Don’t make the common mistake of risking more than you can afford to lose. Be smart and use your protection tools!

Follow Expert Opinion Blindly

We love CNBC and Bloomberg TV, or reading financial news and analysis (all traders should do the same). However, We don’t advise any person to follow their sentiments blindly.

Most of the analysts you see in Bloomberg are not that smart.  others have clients who pay them to say what they are saying. Therefore, their projections are not always the best.

When We was a new trader, We watched an expert share his sentiments about crude oil. We was excited and went straight to our terminal and placed a trade based on what the guy said. Well, we lost thousands of dollars in that trade.

Related » Herding Bias: The Instinct to Trade Following the Crowds

Final Thoughts

No trader is perfect. Even the most experienced ones in the industry incur hefty losses. The key to successful trading is to identify and stick to an effective trading strategy, keep a detailed journal, and learn constantly.

Besides, it is crucial to avoid the common trading mistakes, learn from those you have made, and adjust your trading strategy accordingly.

External Useful Resources

  • Treat trading as a business – FxStreet
  • Day Trading: Smart Or Stupid? – Forbes
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