How to Trade Well and 7 Mistakes Beginner Traders Make
6 min read · · Korean original
Contents 8
Do you want to get good at trading? Unfortunately, trading is really not easy. Beginner traders who are new to trading in particular have many things to fix and improve. Among them, beginner traders who rely on technical analysis often lose a significant part of their assets through frequent mistakes.
That's why we prepared this post! In this post, we'll look at how to trade well, go over the 7 most common mistakes beginner traders make, and see how to fix them.
1. Not Cutting Your Losses
World-renowned trader Ed Seykota once said: "Want to be good at trading? Cut your losses. Cut your losses. Cut your losses. If you can follow these three rules, you may have a chance."
This looks very simple, but in reality it is extremely important, and it is also something far more beginner traders fail to do than you might think.
What matters in trading is not losing. Making money is important too, but the key is understanding the principle that if you don't lose, you end up making money.
Study how to size your positions and place your stop loss at the right level.
How to Manage Risk Using Take Profit and Stop Loss5 min readIf the market is moving against your position and you realize your analysis was wrong, it's a shame, but cut your losses at the right moment and look for the next opportunity.
2. Overtrading
Some beginner traders believe they always need to be holding a position. But trading requires patience.
Wait until a clear setup comes along. Some traders trade only about 3 times a year and still make huge profits.
Jesse Livermore, a pioneer of day trading, left behind these meaningful words: "Money is made by sitting, not by trading."
Don't trade just for the sake of trading. Often, it's better to simply stay put. Protect your capital, and consider entering when a good opportunity comes.
Don't just stare at the 1-minute chart. Widen your time frame to 15-minute and 1-hour candles and assess the bigger market picture from a more objective point of view.
Scalping and short-term trading are not for beginners, and overtrading can be a fast track to ruining your risk-reward ratio.
How to Calculate the Optimal Risk-Reward Ratio (You Can Profit Even with a Low Win Rate)4 min read
3. Revenge Trading
Did you take a big loss? Some people try to make it back by trading emotionally, so to speak.
Losses certainly hurt. But what will you do if that trade leads to an even bigger loss?
One of the most important things in trading is not making emotional decisions. If you want to become a top trader, you need to learn how to stay calm even after a big loss.
Keep a logical and analytical mindset. Don't revenge trade. Take a short break and come back with a rational attitude.
4. Stubbornness and Overconfidence
If you want to succeed as a trader, you need to know how to change your mind. Market conditions are bound to change from moment to moment.
Traders need to be able to use a variety of trading strategies to fit the situation. Legendary trader Paul Tudor Jones put it this way: "Every day I assume every position I have is wrong."
Try looking at your position from the exact opposite side of the decision you made. That way, you can check whether it was a more objective and logical decision.
Be aware of cognitive biases. Ask yourself whether you're stubbornly clinging to a single trading plan. Certainty is one of the things a trader should be wary of.
5. Ignoring Extreme Market Conditions
Markets sometimes reach extreme conditions. For example, when the Relative Strength Index (RSI) is below 30, the market is usually considered oversold. However, the RSI can fall even further, dropping close to 0.
What Is RSI and How to Read It (Relative Strength Index)4 min read
When market momentum is heading toward an extreme like this, you need to build a different set of assumptions and reasoning. When a black swan event occurs, large price swings can happen, and in those moments you need to recognize the market situation quickly and respond.
6. Forgetting That Trading Is a Game of Probabilities
Technical analysis is not absolute. Trading is probabilistic. You can build a strategy based on a particular technical analysis, but there is no guarantee the market will always move as expected.
Whenever you trade, try to estimate the probability of your view playing out. Don't be 100% certain, and adjust the size of your position entry according to that probability.
7. Blindly Accepting Other Traders' Views
There are plenty of experts in the trading world. And it's true that they are better than beginner traders. But even those traders are not always right.
Also, if you want to grow as a trader, you need to find your own strengths and develop them. Successful traders each use different strategies. So an expert's strategy may not necessarily be a perfect fit for you.
If you simply copy other traders' views, you might make a profit a few times. But without real underlying skill, you may not be profitable in the long run.
It's important to use other views as a reference while building the ability to apply and develop them to fit your own strategy.
Final Summary
That wraps up the 7 mistakes beginner traders should watch out for when using technical analysis. Here are the things you should work on as a beginner trader to trade well:
- Cut your losses.
- Don't trade too often. Wait.
- Control your emotions.
- Let go of stubbornness and overconfidence.
- Keep a close eye on market conditions.
- Take a probabilistic approach.
- Don't blindly follow other traders.
Trading well consistently takes time. Building your own trading skills requires a lot of practice and effort. Stay humble as you build your trading skills. It takes time, but with luck and skill, you may well be rewarded accordingly.
