Trading could be one of the hardest endeavours anyone can choose to undertake. I am not saying that clicking buttons and drawing lines on the chart is challenging, but having the right mindset and executing a trading plan is. In this article, I am going to go over some of the most disastrous mistakes that any trader can make so that you can skip learning it the hard way if you have not made them already.
The first mistake that most traders make, especially newer traders, is mistaking accessibility with difficulty. You see, it is so easy for anyone to sign up for a trading account, fund it, and start trading instantly. There are little to no hurdles at all. It couldn’t be any harder to make money trading right? Yes, it is easy to get started trading, but once you are in the game, you get to experience the ebb and flow of the market yourself and feel the emotional barrier while your real money is on the line. You will then realise that not making an execution error is harder than you thought, and it requires more deliberate efforts to improve your skills such as doing intensive backtesting and maintaining a trading journal.
Second, instant gratification is a big killer of traders. We, as a society, are accustomed to instant gratification. We have gotten used to receiving rewards in a short period without putting in a significant amount of effort. Amazon has rolled out same-day delivery. Internet speed is faster than ever, and if a page takes more than 3 seconds to load, we close it. There are tons of pay-to-play games where you can buy in-game tokens to speed up progress. All of these subconsciously affect our trading experience. Most traders want to buy a Lamborghini after 2 months into trading which leads them to ignore their risk management and end up with blown accounts.
Thirdly, most traders associate the monetary fluctuations in their trading account with materialistic stuff. “I could buy a new iPad with that $700 loss yesterday.”, “I just missed out on a $2500 profit, that could pay my rent for 2 months.”This will lead traders to trade their wallets instead of objectively trading the markets. Not only that, many people come into trading, risking the money that they can’t afford to lose, to make money to pay for next month’s expenses. In this way, they have effectively put themselves in a position where losing money is not an option and ironically it is a sure-fire way to lose your account.
The fourth mistake that traders make is going into trading without a plan or putting any deliberate effort to learn and master the craft. Have a look at other professions. Becoming a medical practitioner requires years of studying and undergo residency before one is eligible to obtain an unrestricted license. Athletes train for years to participate in world championships. Coming back to trading, who are you trading against, in the financial markets where everyone is in to make money? You are trading against the seasoned traders from the biggest banks, the fastest algorithms developed by the best quants and the sheer amount of capital that the institutions have. What makes you think that you can just walk into trading and make Lambo money in no time?
Last but not least, “Just this time” is another very dreadful mistake that traders can make. Say that a trader has already equipped himself with a trading plan, he should stick with it 100% of the time, and nothing less is acceptable. Let me tell you why.
Trader A breaks his rule for just one time because he held a firm expectation that the market must behave in a certain way, and he will make more profits if he risks more of his capital.
There are 2 possible outcomes, either he makes a lot of money or incurs a huge drawdown. Both are not desirable, but one has a deadlier consequence than the other.
In this case, it would be better if he lost a lot of money, instead of making a lot of money. Sounds odd? Not. If he makes a lot of money by breaking his rule, it will serve as a subconscious affirmation that it is okay and rewarding to break rules once in a blue moon. This will, more often than not, result in greater monetary losses in the future when the trading account has grown and he is still making a “Just this time” mistake.
There are many more mistakes that traders are susceptible to making, but these are the ones that are seldom mentioned in other articles. I hope this article can save you money, time and hardship in your trading career. If you like it, please share it with your trading buddies.