Trading is not a simple and straightforward activity. It is a long journey, made up of study, sweat, monetary blood spent every time a mistake is made. It is a solitary journey that not only involves our bank account, but also our most hidden inner part, awakening fears and invalidating our psyche. Every mistake you make is a source of pain but no one becomes a capable trader without going through this path.
Today we are going to see some of the mistakes you will surely make as a newbie trader.
The first mistake you may run into involves doing too much or too little paper trading. Here we need to understand how you are made at the level of psyche. Paper trading is a training system for traders that consists of creating sales and purchases on paper, without real money, to train and understand how it works. However, paper trading lacks a fundamental component which is anxiety about the use of real money. On a paper trading account we can also have 100 thousand or more euros invested, but not being real money, your behavior will be easily swashbuckling and arrogant. zeroing the trading account will not be a problem.
Zeroing the account doing paper trading is not actually a real problem, but if you analyze what and why it happened. The best thing to do would be to switch as soon as possible to trading with real money, with small amounts, to begin to get used to managing the tension of maintaining the position on the market and managing the emotional waves of seeing the value of the asset purchased increase or decrease. . More paper trading could serve those who are braver and more gamblers, while a more timid and calm person could leave earlier given his less aggressive disposition.
Another mistake that arises from the first is to use a too big size of the market position. Because there will be a time when we will be so confident in ourselves and our analysis, that we will put half of our portfolio on that stock that we are sure will go up.
And then after a short time to see it collapse sending us into total panic. At which we will have to decide whether to face the pain of losing money and defeating our beliefs or to hold the position ignoring what would be right to do, transforming a short-term trade into a long-term investment, without having any idea when it will be changing trend.
This error also brings with it the anxiety of having a lot of our money invested in a single position, anxiety that will be present even if our position is positive. In fact, anxiety will most likely get us out of the position much sooner than we should, making us bring home a meager income.
The second mistake is related to the third mistake, which is not having a trading plan. Having a trading plan means having an idea of what our goals are for earning and safeguarding the portfolio. It seems obvious but it is not, and above all having a plan helps us to discipline ourselves on the markets.
In fact, planning protects us from another mistake, which is over trading or exaggerating by taking positions. In fact, it can happen that after a series of particularly good and profitable trades our ego pushes us to risk more and more, in the belief that we are very good and we cannot make mistakes. If all the trades have been positive before, these will certainly be positive too, bringing us one step closer to wealth and happiness. On the contrary, in fact our ego is one of the biggest enemies we have, as it deflects our vision and perception of the market by endangering our account.
Being emotional is a mistake that we will always pay dearly for. Being cold and focused means seeing things as they are and not as we would like them to be. Emotion is the enemy of victory especially when it leads to greed. There are situations in which being satisfied is the right choice, in fact the emotionality will mean that we will still be inside the trade that we will have to sell, losing all the profits and going at a loss.
The emotionality leads to what is called FOMO, fear of missing an opportunity. We think it is an unmissable opportunity and we throw ourselves headlong without thinking about it and without analyzing, only to end up making a mistake that cost us part if not all of the trading account. The FOMO is that illogical and illusory push that deceives us and leads us into deception. Think about when prices are high and people who know nothing about it enter the market, buying pushed by the mass media. Think about when your hairdresser tells you to absolutely buy that specific action and that he was good at just taking it. Nothing against hairdressers, some know even more than me, but if your hairdresser knows nothing and tells you so, this is a great example of FOMO.
When you are filled with emotion, you don’t have to sell or buy. You have to study, update, train but not trade. Emotions equate to losses.
You have to follow your take profit and stop loss. If you have put them on and you are not totally stupid there will be a reason, and if you have put them without a sense you are perhaps a beginner and it can even be there. Know them and not follow them, this is being stupid.
And being stupid is always waste of money and a loss of money is pain.