Even though trading is mostly a trial-and-error activity, as traders need to experience different market conditions in order to develop their skills, you should know that there are some mistakes that could be avoided.
Beginners’ mistakes often happen due to a combination of lack of preparation, a poor mindset, and misleading information in the media, amongst other factors. At the time of writing, stocks and commodities are on the rise, the USD is appreciating and interest in financial trading from home has risen, partly driven by pandemic lockdowns and market volatility since 2020. With more newcomers entering the trading space, now is good time to highlight four of the trading mistakes that could be easily avoided by beginners.
#1 Overleveraging
Using margin to trade is a common practice as it can enhance one’s ability to place larger trades and leverage small price movements. However, beginners tend to be overconfident in their ability to manage risk during the early stages, which leads to them losing all their money via one trade. You should be aware that leverage is a double-edged sword and it should be used professionally.
Most brokerages allow customers to adjust margin levels at any point and because of that, you should use this feature by lowering the leverage when market volatility picks up or reducing it when prices are relatively stable.
#2 Doubling down on losing trades
Losses are part of the process and even professional traders can get it wrong. For example at the beginning of 2021, there was a broad consensus for US dollar weakness and yet, the global reserve currency has been consistently rising throughout the year both against developed and emerging countries currencies.
When a losing trade occurs, you should take a pause and analyze the market and your trading process, to see whether something is wrong. Doubling down on a losing trade is not an approach that will statistically lead to higher returns. In fact, it could aggravate losing periods and wreck havoc on your focus, as well as your finances.
#3 Not allocating enough time for trading education
Education is the foundation for a healthy career in the online trading world and only by constantly staying updated with the latest market developments you will manage to spot accurate trade opportunities. You should consult any learning resources from your broker, and supplement this with other material such as videos or books. It’s beneficial for your development as a trader to spend at least a few hours per week studying new concepts and seeing what experts in the field are advising.
#4 Blindly following other people’s trading ideas
As you’ve probably noticed, trading is an activity that takes a lot of time to master. Because of that, many beginners look for an easy way out and they believe getting access to other people’s trading ideas will be a problem-solver.
Although there are many traders actively sharing their thoughts on the market via social media, it would be a mistake to follow their advice due to several factors. The trading idea itself will be meaningless if the trader does not know how to manage it, as the markets unfold. Always do your own research before entering into any trade.
Following
The points we’ve discussed above are some of the common errors that beginner traders make. Whether you’re new or experienced in the financial markets, it helps to always keep these in mind when you’re trading.