Many traders tend to neglect, both consciously and unconsciously, the risk aspect of trading and focus primarily on the reward side.
They ask questions, such as how many pips a system can generate on the average and how much return can be made in one month. They think offense first, defense last.
A key aspect of trading, however, is about protecting one's trading and mental capital. Without trading capital, you can't trade. Without mental stamina, you make bad and fatigued trading decisions.
This article explains why limiting one's mistakes is just as, or perhaps even more, valuable as earning pips. Here is a list of 16 errors that all traders must avoid.
#1: Not Knowing the Importance of Mindset
Traders overemphasise entries and strategies and underestimate the importance of learning how to trade, building up experience, and developing a trading mindset. It takes time to develop, and success doesn't come overnight. It is critical to develop a well-balanced trading psychology (not too fearful, not too confident).
#2: Not Accepting Losses
Traders tend to emphasise the importance of a winning trade. In reality, one loss or one win shouldn't matter in the long run if you use proper risk management. Losses are a normal part of trading and should be accepted as easily as a win. The key to long-term victory is your trading plan and its implementation.
#3: Not Using MetaTrader Supreme Edition
The Supreme Edition is a special plugin developed by Admiral Markets for MetaTrader 4 and MetaTrader 5. It offers very many key benefits including indicators, tools, and Expert Advisors. There are 60+ extra features in total, so MTSE is sure-fire to improve your trading. Download it for FREE!
#4: Justifying an Early or Late Entry
Traders tend to struggle with implementing their trading plan because they change their mind in the last minute. They are fearful of an entry, but then regret not taking the setup… only to enter too late. Or they fear missing a setup and enter to early… only to see that a setup never occured.
#5: Monitoring Setups Too Frequently
Here is a typical path: you just entered a trade on a 4-hour chart, but you are curious and want to check how the setup is developing. You check out the 15-minute chart and see the price is moving against you, which makes you nervous and you exit the setup. Sounds familiar? Trade management is a benefit, but not if it makes you too nervous.
#6: Using Dozens of Indicators to Find Perfect Entry
This is a very well-known problem. Finding the perfect entry method is addictive. Unfortunately, it leads traders into a rabbit hole. Nothing is perfect and traders need to accept imperfections and losses (see point 2) when trading.
#7: Not Researching Your Broker
Choosing a broker is an important aspect of the trading business. Admiral Markets Group AS offers investment services via its regulated investment firms. Admiral Markets UK Ltd is authorised and regulated by the Financial Conduct Authority (FCA); Admiral Markets AS is licensed and authorised by the Estonian Financial Supervision Authority (EFSA). Admiral Markets Cyprus Ltd is authorised and regulated by the Cyprus Securities and Exchange Commission (CySEC).
It has also won multiple awards for its services, platform, technology, and education. Admiral Markets offers own plugin for MetaTrader and daily analysis. The best thing is that it has a wide range of financial instruments at very affordable rates.
#8: Not Seeing Trading as a Challenge
All skills tend to improve quicker when there is an internal motive rather than an external one. Learning to trade because you enjoy it will therefore help you in the quickest way. It's never the market's fault, price action will always follow the path of the least resistance. It is up to the trader to analyse and find profitable trades on this path.
#9: Only Using Intuition
Intuition is a useful ally for experienced traders, but not for beginners. Why? Because novice traders are often impacted by fear, whereas experienced traders build their decisions on a subconscious database of historic price patterns.
#10: Not Developing or Using a Trading Plan
A lot has been said (and written) about this, so we can keep it short… Yes, a trading plan is a must. Yes, using your trading plan is a must.
#11: Markets and Price Patterns are Fractal in Nature
Price patterns tend to repeat, on all time scales. Analysing price patterns is of massive help to traders as it allows them to understand how to analyse the charts in a deeper way, beyond looking at trend and Support & Resistance. This includes chart patterns, candlestick patterns, break or bounce patterns, and Fibonacci patterns.
#12: Don't Become Nervous when in a Trade
Traders can easily become fidgety once a setup is live. That is why keeping your risk at an acceptable level is a key aspect. You want to be able to execute your trade according to plan, not due to fear.
#13: Not Personalising Your System
Trading systems allow you to find an edge, but the best methods are created when you find alignment between your own trading system and trading style. If you are a trend trader, it might be better to avoid reversal setups (see the trending chart in the image below).
Source: EUR/USD 30 minute chart from 2 May to 9 May 2018
#14 Trading for a Living Too Soon
Traders are better off by practising and learning first. Many traders try to earn all of their income from trading as soon as they can. This creates a lot of pressure to perform and often hurts the performance. The first step is always to practise and build sufficient experience.
#15 Not Knowing Your Trading Goals
Sometimes, traders create huge expectations about their performance. The first step is to set up clear and doable objectives that are S.M.A.R.T.: specific, measurable, achievable, realistic, and timely. Once you reach these goals, you can move on and make them tougher!
#16 Closing Wins for 1 Pip in 1 Minute
There's nothing wrong with scalping, but if traders consistently book ultra small profits while risking a lot, eventually, one big loss will wipe out all the small wins.
Wishing you a happy week of trading,
This material does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not reliable indicator for any current or future performance as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisor to ensure you understand the risks.