The 5 Worst Mistakes Beginner Traders Make
Traders are more prone to making mistakes than other kinds of businessmen. This is mainly because trading is a constant process which has multiple investments within a short time. The huge exposure to market risks is thus amplified when you are a trader. It is common for traders to make big mistakes when going about their trade. These mistakes can sometimes be costly while other times they are just small enough to cause no harm. If you are a beginner, you are much more likely to make mistakes. It is thus important to familiarize yourself with the worst mistakes beginners make. Here are the five most common of these.
1. Trading in Multiple Markets
Many beginners make the catastrophic mistake of trading in multiple markets at the same time. The common markets available for trading include:
- Currency market (forex)
- Futures market
- Stock market
As a trader, you should never trade in all the three markets at any point in time no matter how skilled you are. The simple reason for not doing that is that you are effectively tripling your risks by engaging in these volatile markets. Other than that, you will barely have enough time to learn anything worthwhile in any of the markets. The best thing to do thus is to stick to one market and make your trades there.
2. Averaging Down or Up
Secondly, many beginners make the mistake of averaging down their trades in order to mitigate losses. This is not a good idea because you are effectively increasing or decreasing the amount of money you stand to lose if the market goes awry. Averaging up has the same effect and your assets are always exposed. When you average your trade up or down, you increase the margin of loss. The market will most likely end up defeating you in the process since you have allowed it to encroach into your safe space.
3. Using Trading Tools the Wrong Way
The third big mistake that beginners make is to use the available trading tools the wrong way. There are many platforms that are designed to help traders achieve their goals. These platforms are designed with a set of tools and programs that can raise the odds of traders if used effectively. A platform like metatrader comes with webtrader which allows users to access live financial information. Many beginners might be tempted to open webtrader and follow the information flowing through without using other tools to confirm the trends. This could result in huge losses. All trading tools should be used effectively to confirm the signs on the market.
4. Accumulating Losses
Beginners also tend to accumulate losses with the hope that they will make a successful trade that will bring them back to profiting. This is the wrong way to approach the market. A lot of traders tend to assume that trading is akin to gambling and therefore the market is all about losing until you win. On the contrary, trading is much more logical and procedural. If you are making losses continuously, it is probably a good idea to take a break from the market and restrategize.
5. Trading Without A Concrete Plan
Finally, so many beginners dive into the market without a solid trading foundation. This mistake can be very costly because the market is volatile and unforgiving. Traders should thus create foolproof plans that are backed up by research and data. As a trader, you should never follow what other people are doing in the market. You should also not allow emotions to mislead you. The best way to succeed in the market is to come up with a plan that includes your goals and mission in the market.
Trading can be very profitable when done right. Every single trader is capable of making mistakes regardless of their experience. Many of the worst mistakes are however made by inexperienced traders. The worst mistakes in the trading business are capable of leaving you bankrupt. Just like in any industry though, learning about the market is sufficient if you want to trade safely. You should invest enough time to learn about leverage, the general scope of the markets and your own attitude towards trading. Doing this will help you avoid some of the worst mistakes.