3 Common Trading Mistakes

Prosperity Forex • April 2, 2020

How to Avoid Them!

Everyone wants to be successful. Everyone wants financial freedom and happiness. Achieving success can be easy or it can be hard. Most people find it very hard or at least that is what it seems to me. As a day trader, success is much harder because there is much more added stress including emotional stress. However, achieving success, no matter what field you are in, can be made easier by having a solid foundation to rely on.

One of the biggest issues I see with new traders or those that are barely making a profit is that they make key mistakes because they don’t have a solid foundation. Of all the mistakes made, there seems to be three common mistakes that traders and sometimes seasoned traders make. If you can correct these mistakes, the chance of success will greatly improve for you.

1. Traders have no set trading plan. Traders just randomly enter and/or exit, don’t have a specific time they trade, and haven’t done any analysis. Another big issue is traders jump from strategy to strategy without learning all the ins, outs, and nuances of it. Does this sound like you?

a. If you are going to start a business you need to have a business plan that outlines everything like what you are going to do, when you will operate, marketing, swot analysis, etc. This is why you need a trading plan. Your plan will tell you what strategy you will use, what trading session aka what time or times you will trade, how you will enter and exit, etc. The more detailed you can be on your plan, the better your rules will be, and the greater chance of success.

2. A lot of traders have no risk management. Risk Management is extremely important if not the most important skillset to have. Risk management with trading is how much money you are willing to risk per trade. There are other factors that are in play like stop-losses and take profit. I see too many traders base their risk on how they feel. They see a trade setup they like and risk 10 standard lots and the trade goes against them and ultimately the trade loses. Then they take a trade setup they don’t feel that great with and only risk 2 standard lots and it goes for 2:1 or even a 4:1 winner. However, the account is still negative because the losing trade had a bigger risk and the winning trade didn’t make up the difference. Therefore, you have to work twice as hard or more to get back to even.

a. You need to create a solid risk management plan that details how much you will risk. You can say that you will risk 1% of your account balance on every trade or you will trade a certain lot size base on account size, etc. I personally, trade a specific lot size but the lot size will change depending on the stop-loss size. This enables me to risk the same amount per trade. Furthermore, you always want to shoot for a minimum of 2:1, Reward:Risk. This way, you can still win 1 in 3 trades and at bare minimum breakeven but still be able to grow your account. Remember, the goal is to be able to trade the next day. The more detailed and stricter you can be with your Risk Management, the greater chance you have at protecting and growing your account size and creating the ability to trade the next day.

3. The last common mistake most traders tend to make is with their expectations. They think they can get rich quick and they won’t lose money. New traders see all these young traders driving lambos and living in mansions while flying private. Their expectations are unrealistic. Trading involves a high level of risk and you can blow an account very fast. I have blown several accounts and even the greatest traders in the world have blown an account or two.

a. So how do you correct your expectations and make them more realistic? You need to change your mindset. Yes, psychology is involved, but instead of going and talking to a therapist, you can do the easy steps. Video record yourself for a day and then review the video so you can see how you are behaving. You can see the mindset you have and then work to change it. Additionally, set realistic expectations. Understand that trading is not get quick rich. You steadily grow your account and as your account grows, your risk will grow, and then more profitability.

In closing, the key to all of this is to have self-awareness. You need to see the mistakes and errors being made. Yes there are things that can help such as a coach, mentor, getting a sound strategy, but at the end of the day, it is your responsibility to ensure you are not making these common mistakes.

If you are a new trader or a struggling trader or just looking to improve, Prosperity Forex can help you. Send us an email to info@prosperityforex.com for free information on how you can start improving or taking the step towards financial freedom through trading the forex market.

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