The Top 5 Mistakes Made By Novice Traders
As a new trader, it’s almost impossible to foresee the challenges that await after you excitedly pull the trigger on your first trade.
Let’s save you some heartache. Here are the top 5 misconceptions I discovered when I started trading over 15 years ago:
No 1: That a complex trading strategy will have a greater success rate than a simple one.
WRONG
I can’t tell you how many strategies and theories I had running in unison thinking I could outsmart the market. From Elliott Wave, to Time Analysis, from Astro to Gann. From pattern recognition and volume analysis to trying to code complex theories.
I soon realised there was no holy grail. Dumbing things down to strategies that suited my personality gave me the best chance towards success.
No 2: That I would understand the markets better and make better decisions if I watched the screens all day.
WRONG
Big mistake! The human brain can only cope with so much information, let alone with everything else that life throws at you outside of trading.
Too much noise leads to a lack of discipline and impulsive decision making. For me the solution ended up being very simple. Get off the screens and become an End of Day Trader.
No 3: That Position sizing wasn’t important
WRONG
Position sizing is everything. If you don’t mathematically work out your position sizing on each and every trade, then prepare to see your trading capital evaporate… rapidly.
No 4: That straying from your methodology every now and then will be ok
WRONG
Traders that do this believe they are smarter than the markets. If you move your stops around, for example, you are implying that you know what the markets are going to do from one day to the next. Yet no one has this knowledge.
Every successful trader has a plan, and they stick to that plan without fail. Let me repeat that – WITHOUT FAIL
No 5: That trading during major life events is not be a problem.
WRONG
This one will be different for everyone, yet from my experiences, trading during major life events can be fraught with danger. It may be a death in the family, a relationship breakdown, a sick child or a personal illness. These types of events can dramatically affect your ability to think straight.
My advice during these times is to simply turn off your trading platforms and stop trading. Manage your way out of any existing positions but don’t take any new trades. The markets will always be there, and more importantly, so will your trading capital!
