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The 10 Most Common Trading Mistakes

10 Most Common Trading Mistakes
Most traders make mistakes.

But what can you do to avoid the most common trading mistakes?

The best way to avoid mistakes is to set trading rules that help you avoid them, and if you have the discipline to stick to your trading rules, you'll be on your way to success in trading.

Here are the 10 most common trading mistakes with tips on what you can do to avoid them.

10. No Trading Plan

“A peak performance trader is totally committed to being the best and doing whatever it takes to be the best. He feels totally responsible for whatever happens and thus can learn from mistakes. These people typically have a working business plan for trading because they treat trading as a business.” – Van K. Tharp
If you have a trading plan, you will always know how to act in the market and where you are going to place your trades, take your wins and cut your losses.

Your trading plan primarily consists of one or more strategies with trading rules that should help you profit from trading.

Having a trading plan makes trading easy and it takes out the thrill, anxiety, and complexity of trading.

When you don't have a trading plan you'll more likely want to try a new strategy as soon as the one you're currently trading "stops" working.

Most traders will usually jump from one strategy to another every week or month.

So want you want to do is to trade a proven trading strategy based on price action.

If you continuously jump from one strategy to another in the hope of finding the Holy Grail, you are running on false hopes.

The result of this endless jumping around, you'll lose money.

You should never switch strategies simply because of a short losing streak. 

What you need is commitment and discipline if you intend to become a successful trader.

9. Not Following To Your Plan

“The goal of a successful trader is to make the best trades.” – Alexander Elder
For your trading plan to be of any use, you have to follow it. Never deviate from your plan.

Some traders want to trade multiple strategies all at once.

They have this thinking that it will help them make more money.

However, the most successful traders only uses a few trading strategies.

The objective is to use trading strategies that you are confident with trading. Master one strategy at a tine and focus on making the best trades, no matter what the current market situation might be.

Once you mastered one strategy, you can move on and implement other trading strategies.

8. No Patience

Money is made by sitting, not trading.” – Jesse Livermore
Everything starts with patience.

Take your time to practice new strategies and trading habits by paper trading (demo account).

Making the mistakes demo paper trading will definitely allow you to stay in the game. If your desire is to immediately trade on a live account, do it but with a small amount of money.

If you start with all your money, one trade can wipe you out and stop you from trading.

To try to make back big losses (revenge trading) is one of those worst things that a trader can do because it often makes you lose more money. 

It's advised that you set a maximum loss in a day. If the max limit you have set has been hit, you should stop trading to protect your trading account.

7. Overtrading

‘’You don’t need to trade often. If you can catch one or two moves to the targets during the day with good size, you can make a good living and keep trading costs down.’’ – Unknown
Overtrading goes hand in hand with not having patience. If you do not have a setup, do not trade. Wait for your setup you have in your trading plan to form, and then act without hesitation.

Overtrading can also be that you exit your positions too soon, you need patience when you are in a trade, letting your trade reach your target.

6. Giving Into Emotions

“The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliché, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”Victor Sperandeo
It's very important you have a good mindset when you are trading – an open mindset where you always see opportunities in the market and take responsibility for all your actions. I highly recommend you read Trading In The Zone by Mark Douglas which is one of the best trading books for beginners to learn more about trading psychology and mindset.

Most people freak out at first sign of their trade moving against them. This is something you'll see in live trading because of there's psychological pressure when you're dealing with real money compared when you trade with fake money on a demo account.

The freak-out reaction is a problem that you must learn to address. Trades will move against you.  But because these trades can reverse and become winners, you must let your trades play out.

5. Not Having A Trading Journal

Journaling and reviewing you trading is an important habit if you want to develop as a trader.

You can often find ways to improve from your losses, therefore, journaling every trade and reviewing them is something you need to start doing today.

4. Risking To Much

“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have” – Paul Tudor Jones
You will never know the outcome of a trade in advance, no matter how good it looks. Every trade is unique, therefore, only risk a specific amount of your money on your trading account on each trade. 

successful trader will never risk more than 1-2% of his capital on a single trade. By adopting this method, you ensure that in the event of a loss the amount is not too significant and you'll live to trade another day.

It is a firm belief among traders that a good trader will not place more than two percent risk of trading capital in just one single trade. The two percent is his absolute maximum.

The logic behind this is the fact that even if you have a high winning percentage of say 70%, you can still get a loss sequence of 10 losses. Depending on how much you risk on each trade the drawdown will look very different and only those who are risking little will survive this type of drawdown.

3. Taking Profits Early

“Most of the time trailing stops are more profitable than profit targets. We need the big wins to pay for the losing trades. Trends tend to go farther than anyone anticipates.” – Unknown
A profitable trading strategy can become unprofitable if you take your profits too early.

The best way to deal with this problem is to enter your stop loss order and your profit target when you take the trade and then walk away from your computer.

You can also use a trailing stop loss. The technique I talk about in this video can help catch big moves: 
Trailing Stop Loss Technique (4:02)

2. Not Cutting Losses

“The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.” – Ed Seykota
“When I get hurt in the market, I get the hell out. It doesn’t matter at all where the market is trading. I just get out, because I believe that once you’re hurt in the market, your decisions are going to be far less objective than they are when you’re doing well… If you stick around when the market is severely against you, sooner or later they are going to carry you out.”Randy McKay
Losing trades should only ride to your stop where you close the trade. Moving your stop when you are in a trade or not having a stop loss at all is a bad habit. 

Cut your losses and never let them ride too long.

But like I said – you can't cut your losses too early either. Some traders will usually lose huge amounts of money because they never let their trades play out.

If you commit to the mistake of putting stops too close, you will be in a situation where you are stopped out for a loss even before the market had the chance to turn into your favor.

You might have had the right trade idea, but by placing your stop loss very close, you will be stopped out even before the anticipated move happen.

So place your stop losses so you don't get stopped out all the time but also gives you a good risk-reward ratio (easier said than done).

1. Not Keeping It Simple

“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” – Warren Buffett
A big mistake many traders make is trading a strategy too complicated for them to trade.

Keep it simple.

Most traders usually make trading too complicated.

So how can you keep it simple? 

For example, trade price action and stick to a few currency pairs and two time frames

Take trades in direction of the trend on a daily chart and use an intra-day chart to confirm entry. Simply put, if the daily chart is showing an up trend, wait for the intraday chart to confirm with a bullish signal.
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Johan Nordstrom Professional Trader Risk Management
I'm a family guy in my late 20's who learned how to trade the markets in a simple yet effective way. During university I studied investing and graduated with a master's degree in risk management. Quickly, I realized that I was onto something. I started helping friends and taking students. My students started getting results, spent less time in front of their screens, and their accounts grew consistently. Learn more about me here.
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