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2024-06-05 • Updated

To Become a Great Trader, You Must Avoid These 18 Trading Mistakes


Have you ever wondered what helped all those professionals of Wall Street become successful? You will be surprised, but the key to their reached heights is hidden in their mistakes. Yes, that is right. Most professional and successful traders made many mistakes before they got to the top.

Making mistakes is ordinary and sometimes even necessary because it helps you learn. The crucial point of this idea is never to repeat those mistakes because some errors may cost us a fortune. That is why we gathered the 18 most common trading mistakes to avoid, which will hopefully prevent you from suffering losses.

Top 18 mistakes every novice trader makes and how to avoid them

Little preparation

Entering the Forex market is relatively easy, so people have a light-minded attitude towards trading knowledge and don't try to learn the most common Forex mistakes to avoid. Novice traders, especially, think that theory is not a big deal, and they will be able to build it up without a peep. However, it works differently. Without a good base, you will not produce an adequate trading plan or may miss the signals about good and bad trades. Lack of basic Forex knowledge always leads to unpleasant consequences.

To avoid this and similar common trading mistakes, many successful traders start their financial education long before coming to the Forex market. Do not worry, though. You do not need a degree to start trading. Nobody will put pressure on you if you do not know trading strategies or patterns. Nevertheless, to show good results, you need to understand what you are doing.

Find time to dive into Forex and develop your skills. Whether you study some financial theory during the weekends or only half an hour each day, make sure you do this constantly and persistently.

So, how to prepare yourself for trading and get acquainted with the Forex market? The best and easiest way is to find a reliable broker. As a rule, they do more than provide people with platforms for trading. Brokers supply their traders with educational sessions, like free webinars and seminars, online courses, tutorials, etc.

Trading without a plan and strategy

It is quite common among newbies to enter the Forex market and start trading particular instruments recklessly only because they like those assets. Moreover, beginners often base their actions on some strategy only because they understand it better.

Intuitive and unsystematic trading may not end in your favor, even if it benefits at first. Without a plan and strategy, you might panic when your hopes and likes deceive your expectations. It might lead to hasty market decisions resulting in one of the most common trading mistakes.

It’s important to approach trading as a business: do research, fix targets, make a strategy to achieve set goals, consider the sum you are convenient to lose, etc.

Nowadays, you can even test your trading strategy and its potential before risking your money. Some brokers offer a demo account to their traders.

In other words, a thorough plan prepares you not to fall into the clutches of panic in case the market situation changes. So, work out a plan and stick to it.

Miscalculating the risk/reward ratio

The risk/reward ratio is the difference between a trade entry point and the stop-loss and take-profit orders. It is used to compare the expected returns of a trade with the risk taken to get these returns.

For some reason, many traders believe that higher win trades are more profitable than lower ones. Sometimes, this idea even gets paid off, and due to blind luck, trades where the potential risk exceeds the reward end up successful. However, in most cases, such trades are a sure way to make common trading mistakes and lose money in the longer term.

Calculating the risk/reward ratio is a rule that every trader should take into consideration, whether they are a beginner or a professional. Before making a trade, determine the potential reward. It should always be more significant than the potential risk.

So, to calculate the ratio, you need to divide the difference between the entry point of a trade and the stop-loss order (the risk) by the difference between the profit target and the entry point (the reward). If the result is greater than 1.0, the risk is greater than the reward.

Avoiding risk management

Risk management should be the core of your trading because it helps cut down losses. Trading without risk management is like skydiving without a parachute.

There are several ways and techniques to protect yourself from losing money and take advantage of the chance to close deals profitably.

It’s crucial to take a positive and strategic approach to risk management. Use appropriate leverage, examine the benefits of stop-loss and take-profit orders, and watch the number of deals and prices. All of this helps prevent common trading mistakes and reduce losses.

Neglecting market events

Relevant market news is essential as economic events influence the direction of trading during the day. So, if you are not aware of the financial reports or earnings, you might skip the volatility.

On the other hand, excessive focus on the news may also harm. Right after the release, the spread between the bid and ask price is often way higher than usual. This makes it hard to find the liquidity to leave the position at your preferred price.

To avoid this trading error, check out fresh news and economic events to be abreast of the latest possible changes and get ready to make moves. Create a strategy that considers volatility.

To stay up to date with crucial events that might affect your trading, monitor the Economic Calendar and Forex News.


Ignoring trends

Avoiding trends is a serious trading error. Trading against the trend is too risky for new players, especially beginner traders. Besides, trading trends is simple. All you need to do is enter the trade and hold to it while it makes you money.

First, you need to identify a trend to benefit from it. Spotting a trend is easy; look at the chart and see if the market goes up or down. See how others use trends and act accordingly to the minimum 4-hour trend to have a clear vision of the process. Let yourself go with the flow.

Not keeping a trading journal

Whether a beginner or a pro, each trader needs to work on their day trading mistakes. Writing down all your deals, both ups and downs, helps you see which actions have led to unpleasant consequences. Thus, you will be able to analyze when your trading strategy becomes irrelevant.

If you ignore post-trading analysis, be ready for a short ride on the Forex market. You cannot make a quality plan for the next day if you skip the part where you see and understand what mistakes you made.

A trading journal is good for seeing the whole picture. Yes, it might seem tedious, but it is unbelievably helpful as it gives you insights into your strengths and weaknesses as a trader. Recording your failures and wins is a great way to learn about your way of trading and the market itself.

Wrong timing

You all know that time is money. It is especially true for trading. If you are new to the Forex market, do not let yourself make decisions based on intuition — buy and sell based on the expected price changes. Low timeframes aren’t the best for distinguishing day trends. You may miss all good opportunities to succeed.

It is essential to define a timeframe before you enter a position. Timing can help you understand if a trade works out or not. Use technical and fundamental analyses. That allows you to see common patterns in your mistakes.

Letting emotions take the wheel

Remember those movies depicting traders crashing their laptops when their trades do not go as expected? Some traders do give in to panic and start acting irrationally, trying to regain losses. Greed and panic make you overtrade, trade aggressively, or close profitable trades earlier. However, even positive emotions like overwhelming joy and triumph of a successfully closed order can be a serious stumbling point on your way to achieving success.

To avoid emotional trading mistakes, never let your emotions overrule the mind. Any financial market is an actual battlefield where bulls and bears fight over securities and stock market prices. The same fight happens inside you when you see that the plan does not work out the way you expected.

Any emotion is a fast way to poverty. Learn to harness them. Stay focused on the big picture and set realistic goals. You cannot become a billionaire by Friday.


Trading for fun

As said above, trading is a business, and each trader’s goal is to make money. Set your goals and go for your financial freedom. If you feel bored or do not feel like trading at all, give yourself a break. Do not let Hollywood movies mesmerize you. Take trading seriously, and it will give you the possibility to be closer to your dream.

If you have already entered the Forex world, you are ready to make carefully weighed decisions to get to the top. Set up your mind for success and overcome all the obstacles.

Guessing in trading

One of the trading mistakes to avoid is guessing while trading instead of using technical and fundamental analyses to understand the behavior of the market. When traders first decide to start trading, they usually have only a vague idea of what trading actually entails. New traders often don’t have strategies or trading plans; they don’t use indicators and don’t follow the news.

What they end up doing is guessing. They try to guess whether the price of a security is going to rise and buy it if they decide it is. However, without using special software that gathers data about the current market conditions, this “strategy” is similar to the behavior of gamblers who bet their money on a random outcome. But trading is not random or intuitive, so this approach doesn’t work out in the long term.

To avoid this trading mistake, new traders should focus on educating themselves about trading. Learning what affects the movement of the price, how to use technical and fundamental analysis, which signs come before a trend reversal, and how to spot entry and exit points is what helps traders to make successful trades. Trading isn’t about guessing, so knowing the mechanisms behind it is what can help traders avoid this and other common trading mistakes.

Trading without a stop-loss order

Stop-loss orders are essential tools that traders use to avoid losses. However, there’s a fair amount of novice traders who believe they can get by without stop-loss orders. In a sense, this may work if a trader constantly monitors all open trades. But most of the time, this level of attention and monitoring is impossible to achieve, especially if a trader gets distracted by other trades. This can cause a trader to miss when the price of a security falls, which is very likely to end up in huge and uncontrollable losses.

Traders can avoid this trading mistake by learning how a Stop Loss works and how to set up one for each of their trades. Doing this is an important part of risk management and can prevent unnecessary losses from unexpected market moves.

Opening large positions

One of the trading mistakes to avoid is investing all or a large portion of your money into one trade. This is a sure way to lose more than your account can handle, as even a well-tested trading strategy is not foolproof. And since novice traders have yet to learn how to develop a successful strategy, making this mistake is much more dangerous for them.

To avoid this mistake, new traders should try and learn how to handle trades, whether with a demo account or small position trades. Make multiple trades to see if your strategy works and what your success rate is. If you get positive results, you can try increasing your position sizes.

Taking too many trades

There are so many various securities to trade that new traders find it hard to focus on only one. This, however, is one of the common trading mistakes in stock trading and other markets. Opening so many positions means that traders will have to monitor several different charts at the same time. Unless they use automated trading software, keeping up with this amount of trades is virtually impossible and can result in a lot of them failing.

This mistake is easy to avoid by limiting the number of trades you’re taking and sticking to your trading strategy. This will allow you to focus only on those opportunities that are likely to bring you profit without making unnecessary trades.

Overusing leverage

Leverage is truly a double-edged sword. On the one hand, it allows traders to increase the size of their trades without using much of their personal capital. On the other hand, if a trade goes wrong, leverage can exacerbate a trader’s losses, leaving them with a huge debt to handle. Using too much leverage, especially if you’re a new trader, can wipe out your account entirely.

Even though this is one of the most common Forex trading mistakes, you can avoid it by starting with a low leverage ratio, like 10:1, instead of using high leverage (for example, 1000:1). This will help you learn how to trade with leverage without risking your capital. Later, when you feel confident, you can gradually increase the leverage ratio.

Engaging in revenge trading

Revenge trading refers to opening new trades to make up for previous losses, whether to get your money back or to prove to yourself that you can be a successful trader. However, this very destructive behavior ends in more losses more often than not. If you have the urge to take revenge on the market, you’re too emotional and stressed to analyze the market and make reasonable trading decisions.

If you find yourself in this state, the right thing to do to avoid making this trading mistake is to stop. If you feel keyed up about your loss, you should take a break, learn trading discipline, and analyze your loss before jumping back into trading. Doing this will allow you to calm down and avoid making the same mistake again.

Trading in multiple markets at once

It might seem that trading in different markets at once can help you earn more profits. However, this strategy is one of the most common mistakes new traders make. Each market requires different strategies and approaches and reacts differently to the same events. Trading in different markets at the same time is hard, especially for new traders who don’t even know how to trade in one market successfully.

It’s really important to avoid trading in multiple markets when you’re a beginner. You need to get a better understanding of how one market works first and get trading experience before including another market in your trading plan.

Trying to catch an old trend

New traders often have this urge to trade securities or markets that already showed strong performance over the past several years. However, these long-lasting trends may be coming to a close, and jumping on them can lead to unpleasant consequences.

Because of this, beginners would be better off trying to find recent trends or waiting for a new trend to emerge. Doing so will provide them with more stable trading opportunities and help them avoid suffering losses from a dying trend.

Bottom line

You cannot learn to sing without miscarrying the tune. Finally, when it comes to success, you will talk only about your victory, avoiding mentioning the misfortunes and hardships. The same principle works for traders. Trading is a craft, and traders need to polish their skills and knowledge in overcoming obstacles.

However, why make mistakes if you can avoid them, especially when money is at stake? Save this summary table to put yourself on guard against trading errors and potential losses.

Trading mistake

How to avoid it

Little preparation

Learn Forex and trade like a pro.

Trading without a plan and strategy

Make a plan and apply the appropriate strategy to it.

Miscalculating the risk/reward ratio

Increase your chances of getting profit.

Avoiding risk management

Manage your risks by using multiple tools.

Neglecting market events

Mind economic events and learn to trade news.

Ignoring trends

Learn to identify trends and take most of them.

Not keeping a trading journal

Record all fails and wins in the trading journal.

Wrong timing

Choose trading time wisely.

Getting emotional

Master your emotions.

Trading for fun

The mindset of a successful trader.

Guessing in trading

Learn how the markets work.

Trading without a stop-loss order

Use stop-loss orders.

Opening large positions

Start with multiple small positions.

Taking too many trades

Focus on your strategy.

Overusing leverage

Start with a small leverage ratio.

Engaging in revenge trading

Learn trading discipline.

Trading in multiple markets at once

Get experience in one market.

Trying to catch an old trend

Find new trends to follow.

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