I was recently asked about some of the trading mistakes new traders run into when getting started trading.
It was easy to come up with a lengthy list, mainly because I’ve personally made all of these mistakes myself, and in most cases, more than once.
I thought it would be fun to put together a bulleted list of some high-level trading mistakes and bad habits to avoid.
In no particular order, and by no means a complete list:
Trading mistakes and bad habits to avoid
- Trading with too little capital (relative to costs of commissions).
- Overtrading when there is nothing to do (again, damn commissions).
- Averaging into losing trades when it’s not a part of your original plan.
- Entering into a trade without an exit plan in mind.
- Entering into a trade risking more than 1 to 2% of your total capital.
- Entering into a trade based solely on someone’s tweet.
- Trading without understanding what edge you actually have.
- Trading to get back gains (revenge trading).
- Thinking trading is easy after going on a winning streak.
- Thinking the market is out to get you after getting stopped out.
- Mistaking luck for real skill or edge (very difficult to identify).
- Blaming anyone but yourself for your losses or performance.
- Letting outside media or opinions influence your trading strategy.
- Thinking just because you “are a trader” that you need to trade.
What’s particularly dangerous about this list, and why bad habits is a key phrase, is because doing anyone of these can reward you with a positive short-term outcome.
For example, averaging into a losing trade without it being a part of your original strategy can successfully bail you out of an underwater position.
But over the long run, that behavior is all too likely to come back to rear its ugly head and cause havoc on your account.
As I read through this list in the third quarter of 2020 where Nasdaq stocks are breaking records on their relentless uninterrupted climb to new all-time highs day after day, I am once again reminded, how easy it is to form bad habits.
Why honor stop losses and follow conservative risk management rules when stocks only go up? I know this may sound absurd if you aren’t trading through this period, but it’s very easy to fall into these traps when markets reward traders for acting this way for long stretches of time.
I hope this post serves as a little reminder to keep up with your sound trading principles, and if you do find yourself routinely doing anything from above, make sure it is something you have a deliberate and rational reason for.
Anything else you want to add? Leave a comment below.
Thanks for reading and good luck out there.
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