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Common trading mistakes to avoid as a trader

Education /
Milan Cutkovic

Trading seems so simple. After all, a price can only go up or down so all traders have to do is pick the right direction then sit back and wait for the money to roll in, right? Well, not quite.

The trading world can be full of surprises for those who have big ideas but little in the way of preparation. When ill-prepared traders won't recognise that mistakes in trading are all a part of the learning process and can actually shape a person into becoming a successful trader.

Legendary Wall Street trader Martin Schwartz shared both the lows and highs of his stellar trading career in his book 'Pit Bull: Lessons from Wall Street's Champion Day Trader'. In his typical flamboyant fashion, he recalled how he lost $10,000 within a few hours of opening his first trade.

But what’s outstanding about this book is how Schwartz openly discussed the trading mistakes he committed, particularly when he was brand new to trading. He details how he learned and corrected those mistakes, and from then on the rest was history as he became one of the most successful and famous traders in the world.

Schwartz’s book is a practical and realistic reference to the most common trading mistakes.

And there’s no doubt that most traders – if not all – would have made or are still making the same mistakes.

Making trading mistakes is part of every trader’s journey. Whether someone is completely new to trading or has been trading the markets for decades, chances are they will make some common trading mistakes.

Some of these mistakes are more costly than others. And the fact is there are some mistakes that are hard to accept. For some traders, ignoring a mistake and repeating it over and over again can spell the difference between becoming a successful trader or losing one.


Table of contents

  1. Trading without a trading plan
  2. Trading too much, too soon
  3. Emotional trading
  4. Guessing
  5. Not using a stop-loss order
  6. Taking too big positions
  7. Taking too many positions
  8. Over leveraging
  9. Revenge trading
  10. Letting profitable trades turn into losses
  11. Not tracking trades in a trading journal
  12. Don't forget about your investment time horizon
  13. Being able to accept losses
  14. Following the crowd
  15. Trading in multiple markets at once
  16. Chasing markets with strong performance


1. Trading without a trading plan

Every trader needs a trading plan. If they don't have one, it’s time to get one and the best place to start is by thinking about why you’re trading.

Is it because they want to earn a bit of extra money on the side of their regular job?

Do they want to make a career out of tracking the stock market?

Is it just something they're doing for a challenge?

Whatever the reason may be, the goals will help dictate the way a person trades. 

Traders need to think about what they really want to get from trading and then work out how to get it. Consider the amount of time available to dedicate to trading, the types of trades to pursue (e.g. high volume, low profit), and whether the level of knowledge is sufficient or if more time is needed on education.

Man trading on his laptop and two monitors

2. Trading too much, too soon

Due to the potential to earn money from trading the temptation, especially for new traders, is to push limits in the hope of getting greater profits quickly. 

But going into trades too enthusiastically - either in volume or value - only serves to raise your level of risk. If you overreach and things go against you, you might bounce yourself out of the market before you’ve even had a chance to settle in. Too many people enter the trading markets with the idea that it’s going to set them on a fast path to millions.

The reality is that trading isn’t the kind of thing where you casually throw in a bit of money and get untold riches in return - it takes a lot of skill and patience to get anywhere near those lofty heights.

Build slowly and steadily. Test things out with a demo trading account first, then once you open a live trading account with real money, invest a small amount and trade in one or two markets to get a feel for things.

Traders can make a profit from forex trading, stock trading, commodity trading, and more, but it rarely gets made on a handful of quick trades.

The more time traders are able to dedicate to trading, the better they become, the easier they find it, and the more trading opportunities reveal themselves.


3. Emotional trading

We’ve all experienced that feeling when you’re on a good run and feel like you can’t do anything wrong. When traders apply that to trading, it’s generally when you experience a sequence of profitable trades and you feel like you’ve mastered it. But all good runs eventually come to an end and it’s crucial to remember this because, ultimately, it’s money at stake. 

It’s good to be excited about trading and confidence is always a welcome characteristic, but don’t let emotion dictate trading behaviour and push you into positions you wouldn’t normally take.

Try to temper emotional trading mistakes. Before launching into a trade, take half a step back and try to look at it objectively. Does it fit the trading strategy? Are you doing it based on sound information or just a gut feeling? How would you react if the trade went against you? 

Come up with a system of cues that will help you protect yourself from too much emotional investment.


4. Guessing

If traders enter into a trade without doing any preparation, they’re not really a trader. 

In fact, trading without putting any effort towards education or understanding how the markets work is more like walking into a casino, throwing some money on the roulette table, and hoping for the best. While it’s true that there’s an element of unpredictability and volatility inherent to trading, by spending time learning and observing how the market works, traders can form an idea about the types of trades best suited to them.

Educate yourself and be prepared before every trade. Axi offers a wealth of educational content in whatever format you prefer: courses, blogs, eBooks, webinars, and more. Take what you learn and apply it in your demo trading account where you can practice with no risk before moving into the real environment.

Puzzled man trading at his computer

5. Not using a stop-loss order

Trading without using a stop-loss level is like driving a car without breaks. It’s too dangerous.

But despite that, many traders still trade without using this useful tool. And in most cases, it ends up in painful losses. Unnecessary and avoidable losses.

If you use a stop-loss level properly, you can avoid getting too deep into a losing position.

Whether you want to put a ‘hard’ stop-loss as soon as you enter a trade, or you have a ‘soft’ stop-loss level in front of you as you trade, you will be in a better position if you use this as part of your risk management. Just remember that soft stop-loss levels are more suitable for advanced traders who have experience in these markets.


6. Taking too big positions

There is no doubt the attraction of a big winning trade is on every trader’s mind. And the temptation to take a big position (thinking it will be a winning trade) is always present. Money management for traders is essential to keep them in the markets.

But as proven time and time again, taking too big a position on a trade can be risky. There is no guarantee the trade will go the way you want it to go. So, if you risk 50% of your capital in a single trade and that trade turns against you, it will seriously decrease your trading capital.

And it may also take a big psychological toll on you as a trader. It's important to learn position sizing techniques to help reduce the amount of risk and develop a sound approach to entering and exiting trades.


7. Taking too many positions

While there are many markets to trade and numerous trading opportunities every day, taking too many positions may also be detrimental to your trading.

Unless you have a robust and automated trading system that automatically places trades for you, monitoring too many positions can be confusing and high-risk, to say the least.

Remember the human brain can only deal with a limited amount of information at a time. And the attention needed for each trade means you have limited time and focus to give each trade.

If you take too many positions at one time without the proper automated systems to monitor them, chances are some of those trades will fail.

So, next time you’re trading, be mindful of the number of trades you’re taking. It is best to focus on a few trades first – enter and exit them – then start again if other trading opportunities arise.

When you have a clearly defined trading strategy, filtering through the trade opportunities that become available and picking the best ones will be a little easier.


8. Overleveraging

The ability to use leverage is one of the main attractions to markets like forex, indices, precious metals, and cryptocurrencies. Leverage allows you to trade a much bigger position even with a smaller amount of trading capital.

But as we all know, leverage can be a double-edged sword. It can amplify both winning and losing trades.

One of the cardinal sins of traders – particularly of those who don’t fully understand how leverage works – is to use a high level of leverage. Some people only see potential wins and ignore potential losses.

If you use a high level of leverage and the trade turns against you, this could result in a total wipeout of your trading capital.

So, the best way to use leverage is to start low. Try using the lowest level of leverage offered by your trading provider. Once you are more comfortable with how leverage works, then you can increase the leverage level if you like.

The thing to remember is that just because there are larger amounts of leverage levels on offer – leverage can range from 10:1, 50:1; 100:1; 200:1, or 400:1 depending on your jurisdiction – it doesn’t mean you have to use the highest level possible.

As the saying goes, you need to walk first before you can run.


9. Revenge trading

Don’t you hate it when you lose? And don’t you just want to get back into the market, take another trade, and prove you can be a winner?

That’s exactly the thinking behind revenge trading. You want to get even. You want to prove you’re a winner.

But most of the time revenge trading can bring more pain than gain.

Consider this for a moment. When you get into a revenge trade, you’re most likely not in the best emotional state. You’re most likely still seething or too stressed out to make a sound trading decision. And most likely you haven’t really analysed the next trade – whether it has good potential or not.

So, the best thing you can do about revenge trading is not to get involved with it at all.

If you have a losing trade or a string of losses, it is better to step back and analyse what went wrong. 

Was the market too choppy to trade anyway? What went wrong with your initial analysis?

Most of the time, if not all the time, it’s best to avoid revenge trades at all costs.


10. Letting profitable trades turn into losses

If you're making this mistake, you're not alone. Even the big guns are guilty of this common trading mistake.

How many times have you perfectly timed your entry, seen a nice paper profit, only to see it vaporised by a sharp reversal? I'm going to bet more than once.

Letting a good trade go bad is the first major mistake you can make trading the financial markets, but there is light at the end of the tunnel. 

The best way to correct this mistake is planning. You should know when you are going to exit before you enter into the trade. And you should have multiple reasons to exit. 

Traders need to develop their own trading exit strategies that allow them to achieve an objective from the trade – even if it does not go exactly as they might have hoped. This can include a combination of:

  • Profit target(s)
  • Wide trailing stop (for trending markets)
  • Tight trailing stop (for fast exhaustion moves)
  • Risk/reward stop (for when you get close to your profit target)

You can also scale out of your trade. Take a bit of your position off when the market makes some available, take a bit more as the move progresses, and leave some on for the big wins. This type of approach will help you to smooth out your equity curve.

Finger pointing at a trading chart that is going down

11. Not tracking trades in a trading journal

Using a trading journal is a very critical part of becoming a successful trader. It isn't as simple as recording your entry and exits for profitable trades, it requires a bit more information and attention.

Your trading journal should include all trades, good, bad, and even really bad ones.

Some types of information that should be recorded in a trading journal include:

  • Date and time of trade
  • What instrument is being traded
  • Screenshots of the chart setup when trade was entered
  • Position size
  • Your thoughts and reasoning for entering the trade

By having a trade journal available to you, you're able to go back and review your successful trades and trades that weren't so successful to highlight opportunities in your trading strategy where you can improve.


12. Don't forget about your investment time horizon

Investing without a time horizon in mind can set you up for failure. This is because all investments are either long-term or short-term, and they will have different rates of return depending on the length of your investment. 

For example, stocks that perform well over long periods but not so much during shorter ones may make sense to hold onto when considering retirement savings.

When you understand your time horizon, you can better match the right investments to your portfolio.


13. Being able to accept losses

Many traders are under the impression that they can't make mistakes like investment professionals, but this is simply not true. 

If you jumped into a trade without doing your due diligence or you're a long-time earner and your portfolio has suddenly taken a dive, it's important to accept what happened and move on instead of letting your pride control your trading style, and hold onto those losers longer.

There is always going to be another day and another trading opportunity. Learn from those previous losses to continue improving your skillset on the way to becoming a successful trader.


14. Following the crowd

Following the crowd is a common trading mistake where inexperienced traders blindly follow the herd mentality, finding themselves in detrimental trades.

It's important for novice traders to think about their own trading style when making decisions so that they don't jump into trends without conducting their own research and without understanding why it might work out better for them. If you enter into a trade by following someone else without performing any technical or fundamental analysis and a trade loses, you only have yourself to blame.

Group of business men looking in the same direction

15. Trading in multiple markets at once

Inexperienced traders may jump from market to market - from forex to indices and cryptocurrency to commodities. This is a common mistake and it can lead to over-trading and significant losses.

Getting a better understanding of a market is important for traders of all levels so that trading decisions are based on facts instead of gut feelings or emotions. Before branching out, it is wise to come to grips with one market and gain valuable trading experience before jumping into multiple markets at once.


16. Chasing markets with strong past performance

It's common for many traders to select a particular asset or market that has seen strong past performance over the past couple of years. This 'Fear Of Missing Out' mentality has probably caused more negative investment decisions than positive ones.

The market that has been performing well for those few years may well be nearing its end, with all the smart money being moved out and the traders making the mistake (the dumb money) pouring in.

Traders need to understand the best time to have invested in that market was three or four years ago, not now.


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This information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. It has been prepared without taking your objectives, financial situation, or needs into account. Any references to past performance and forecasts are not reliable indicators of future results. Axi makes no representation and assumes no liability regarding the accuracy and completeness of the content in this publication. Readers should seek their own advice.


How do you overcome trade mistakes?

The first step to overcoming your trading mistakes is being aware of them and taking note of when you may have made one of these mistakes. Review our list of common trading mistakes and inside your trading journal, write down every time you make one of these mistakes. As you become increasingly aware of the negative things you do as a part of your trading, the more you will distance yourself from them.

What trading mistakes to avoid when trading stocks?

Most of these mistakes in our list carry over to stocks but there are some other common mistakes to avoid when trading stocks. Some of these include: buying stocks with low volume, trusting stock promoters, and trading difficult and unclear chart patterns.

Milan Cutkovic

Milan Cutkovic

Milan Cutkovic has over eight years of experience in trading and market analysis across forex, indices, commodities, and stocks. He was one of the first traders accepted into the Axi Select programme which identifies highly talented traders and assists them with professional development.

As well as being a trader, Milan writes daily analysis for the Axi community, using his extensive knowledge of financial markets to provide unique insights and commentary. He is passionate about helping others become more successful in their trading and shares his skills by contributing to comprehensive trading eBooks and regularly publishing educational articles on the Axi blog, His work is frequently quoted in leading international newspapers and media portals.

Milan is frequently quoted and mentioned in many financial publications, including Yahoo Finance, Business Insider, Barrons, CNN, Reuters, New York Post, and MarketWatch.

Find him on: LinkedIn

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