If you have not yet already nursed the battle scars from the markets as an amateur trader, it’s very highly likely that you will any day soon. Face it; it’s only a matter of time…unless you are prepared to learn about what key traits separate successful traders from the unsuccessful ones.
It’s no coincidence that 92% of amateur traders who try to trade successfully, in fact end up blowing up their account and giving up. But you don’t have to be included in this statistic… especially when you can simply learn from their mistakes before you make them!
This article will discuss the typical blunders the amateur trader will make before they kick the can, walk away and simply give up.
But, more crucially, it will tell you exactly what you need to do so you can avoid them too; so that you experience less of what you may have once felt as a frustrating and expensive folly by transforming it into more of a carefree and relaxing hobby.
Let us start with the typical “school boy” errors most have-a-go traders make regardless of whether they trade intra-day or end-of-day their in chosen trading style of trading..
These are known as the “killer truths” behind why so many uninformed amateurs fail in the markets after blowing up their trading account or, at best, steadily decimating it by a thousand paper cuts over time.
So, what are the challenges that many amateur trader’s face? Well, funnily enough, much of the trouble the amateur trader gets into is their own doing!
“If you fail to plan – you plan to fail.” It may sound like a cliché but it holds true for the vast majority of amateur traders who simply do not have, yet alone follow, a trading plan. The absence of a trading plan in their trading routine, with its strategy rules for entry, exit, and trade and risk management criteria will mean that it’s highly likely that the rookie is trading on emotion or “gut feeling” and is essentially gambling! By having a trading plan in place, the trader will have a firm idea about what to do and when to do it, while avoiding major pitfalls along the way.
The seasoned trader will have a rigid idea of what to do and when to do it. They will know what to trade and when. But perhaps most crucially, they will know exactly when to stay out of the market. They will accept that the market can do anything at anytime, and that losing trades in pursuit of a positive overall return over a sample of trades is necessary. Suffice to say, they will readily accept that often it’s necessary to lose the battle and sustain a few smaller losses in order to win the war and achieve long-term, sustained capital growth. The amateur meanwhile, ever fearful of missing a trade, will not have such a fixed way of doing things. Ever fearful of missing the move of the day, they will typically over-trade, jumping in to the market willy-nilly in order to try to satisfy their insatiable appetite for that fast buck. They will lack rules and will often hold a strong emotional attachment to the outcome of their trade, leading to what is experienced by many a newbie as an “emotional rollercoaster”.
Failure to keep the risk small will lead to the assassination of your trading account! The most naive of traders will typically assassinate theirs in one of two ways. Firstly, they will trade without a using a protective stop-loss. Whether it’s as a result of either being completely unaware of what a stop-loss actually is, or out of fear of being proved “wrong” by the market by being stopped out too. A successful trader will always use this order which will automatically exit them from the trade if the market goes against them. Ever mindful that they should protect their capital at all times, they will typically place their stop-loss at the point of where the set-up becomes invalid (if the market reaches it).
Secondly, the professional will keep the risk low for every trade they, no matter how great their trade set-up looks (typically between 1-2% of the account’s value). The rookie, however, will have a slap-dash approach, often without realising that they are risking large amounts on their trades set-up. Furthermore, the amount they risk per trade will typically be different every time, lacking consistency...very much like their trading results.
Many amateur traders delude themselves foolhardily into thinking that they can conquer the markets at home, on their own, in their spare room. The stark reality, however, is that many newbies who are left to their own devices do no more than make cripplingly costly errors which quickly cause them to join the long queue of traders who wipe out. Look, if you wanted to learn how to drive, you would learn in a car with instructor, wouldn’t you? To become a doctor, it would make sense to enrol at some medical school. So when it comes to learning how to trade profitably, it would make sense to learn from a professional trader, right? You would probably think so. But astonishingly enough, this simple logic eludes even the brightest minds of have-a-go-traders who go on to experience the Traders’ School of Hard Knocks before seeking professional help. The most efficient way to become a successful trader is to take advantage of the experience of successful traders without trying to reinvent the wheel.
Trading is not a get-rick-quick scheme, even though it’s what a lot of forex scams will want you believe through misleading and often seductive advertising campaigns. Anyone who says it is “easy money” will often follow-up by asking you to spend thousands on their trader training course or “mentorship”. It takes patience, the desire to learn, determination and often many hours of time in the saddle to become consistently profitable, month after month. If you ever come across the people openly boasting about how much money they’ve made from their trading are generally the ones either quietly harbouring huge losses to go with it, or are taking extra-ordinary risks in what often becomes an unsustainable game of roulette.
If anyone tells you they lost money in trading and it wasn’t down to any of the previous reasons…they are probably lying!
There is no need for you to become part of the 92% of amateur traders who fail in trading – especially when you can pinpoint exactly what they are doing wrong. From learning from other people’s mistakes in this manner, you will be arming yourself against the emotional pain and suffering that so many rookies go through before they give up…so that you don’t have to.
Remember, from having a trading plan, keeping the risk low, reasonable expectations and, above all, a disciplined approach to your trading – you will be in a position to fast-track yourself to consistently profitable trading. Don’t be an amateur trader!