Hello my dear trader friends. I know trading is not an easy field to earn money from as over here we are competing with ourselves, that is, competing with our own Ego, Desires and Discipline.
I recently posted a thread on my trading mistakes on twitter and a lot of my followers/ friends appreciated it so i thought i should write a detailed article too on the same topic. Will try to keep it as simple as possible so that all the new traders can also understand it easily and would get some important lessons from it and it might help them in their trading careers.
1. Too Many Indicators –
I have seen this pattern now and even i followed the same when i started trading, that is, to use a lot of indicators on the chart thinking that more indicators would help me in understanding the price as at least one of those indicator would be accurate. But, as we know, indicators are derived from the ” Price ” itself and we should focus on learning price action itself.
Price action in itself is the most important element of a chart but we tend to ignore it and try to run behind fancy indicators. Having said that, i admit that we should learn some basic indicators in our initial days of trading as they are an ” additional ” tool that compliments the price action and can be used in understanding the underline trend. However, once we have enough practice of reading charts, we should try to use as less indicators as possible.
2. Revenge Trading –
Revenge trading, as the name suggests is the trading style which we generally follow compulsively due to a recent losing streak. The loss could be sometimes so big, or frequent, that it really hurts the ego of a trader and he/she is desperate to make back the money that they lost.
If we keep thinking like this, we might soon blow up our entire capital as we would be trading with Fear and Anger and hardly with a trading plan.
We should learn to accept our losses as try to keep them as small as possible because losses would always be there, it’s a part of the game. They should be treated as lessons and not as losses. Every losses teaches us a lot if we are ready to evaluate what caused them in the first place. That’s where a journal comes into the picture.
3. Leverage –
Leverage is a double edged sword, i agree, but, in the initial weeks/months of trading, we should try to stay as far away from it as possible. If we totally new or are not trading under someone’s guidance, we can’t even imagine how quickly we can blow up our capital.
I suggest to first try to be profitable in cash trading for at least 2 years before even thinking to leverage trading.
4. FOMO ( Fear Of Missing Out )
This is a very important point but is generally ignored by most of the traders as they don’t even realize that they are trading out of Fear Of Missing Out.
Ask yourself, haven’t you faced a situation in which you bought a stock just because it kept rallying and you thought that you are really missing a great opportunity and you jumped onto it and most probably, as you bought it, it started to decline and you felt really bad.
We should be buying a stock when the risk to reward ratio is in our favor, that is, we have less to lose and more to make in it and we can then decide whether the stock should be bought or missed at a particular price. Having a checklist is a great way to avoid fear of missing out as you would buy something only if your pre determined check points are being full filled to buy a stock. These could be something as simple as buying a stock which is above it’s 20 day moving average or buying only if the RSI is above 50 etc.
5. Discussing trades with others.
I agree that we should discuss our trading strategy with others so that we can improve it and refine it as much as possible. There are a number of trading strategies out there which we can use and we generally have to find out which one is suiting our personality after a lot of trials and errors, so discussing it with someone helps us to keep a track of our progress.
But, once we are happy with out trading style, we should not discuss our individual stocks and trades with others as we all have different temperament and personality and most importantly, risk apatite. We can easily get influenced by someone else and might end up exiting a trade just because they convinced us that it’s not looking good. That’s the reason i am not a part of any discussion groups or whatsapp groups and prefer to trade alone in my home office.
6. Get Rich Quick ??
Trading is generally marketed as a device to get rich quick. We can create enormous amount of wealth along with generating cash flow for our day to day expenses, but it should never be looked as a means of getting rich quick. We can generate huge profits very quick here if we take huge leverage and bet the house in a few trades or just a single trade, but it generally goes back to the market in the same way as losses.
Trading is a business and it should be looked upon as one. In any business, over leverage generally kills and we should have rational expectations from the market. The more disciplined we are and the more patience we have towards reaching our financial goals, higher would be the chances to accomplish them.
There are many more points which i want to discuss but i think it’s better to discuss them later in a separate post as i know people don’t like reading long posts. If you guys want to discuss anything related to this topic, feel free to ask questions in the comment section below.