Top 7 Mistakes New Traders Make, you should avoid

What attracts new people to the share market the most? If I ask this to many of you - the answer would be like turning money into big money. Right? Hitting the stock market or share trading is definitely exciting and most of the new traders are allured by the potential to make big money through it. This kind of excitement definitely can be a good motivator for newbies, however, the excitement motivated by making of big money may lead them towards irrational thinking, finally results into hasty decision that kills.

Actually, new traders, distracted by the potential of large profit, start trading based on luck. Trading cannot be done just based on speculation and luck. It is much more than this. Trading is an art that requires learning, hard work, execution and discipline. Big gain is possible but it is a process, not an instant gratification. The hours Hard work makes the way towards success. I often see new traders make the same mistakes repeatedly. So, I am listing those common mistakes that may help you avoid making them.

Trading is an art that requires learning, hard work, execution and discipline. Big gain is possible but it is a process not an instant gratification.

1. Hit the market Unprepared

Share Trading can be anything but gambling. You must not gamble your hard-earned money. No one is going to be super rich by gambling. Off course, some luck can help you one or two times but you should not depend on it in the long run. You cannot hit the market unprepared. Can You hit century after century like Virat Kohli in all form of cricket unprepared? Even Virat does preparation. So, you need to prepare for the markets as well. Your preparation starts from learning. 

Can You hit century after century like Virat Kohli in all form of cricket unprepared?

You should properly equipped before playing the game of trading. You have to understand how the market moves, what kind of set up or strategy suits you and how to take entry and exit from the trade. Don’t play T20 in first go, starts with a test, and become the master of the game slowly but certainly.

Don’t play T20 in first go, starts with test, and become the master of the game slowly but certainly.

2. Understand Money Management

Money management is another important pillar that you have to build. Because it helps you to protect your capital. The most common mistake all most all new traders do is they put their all money in a single trade. What if the odds don’t go in their favour?
It wipes away their entire capital. Why to expose yourself to unnecessary risk? If you only use 10% of your capital for any trade, you can never blow up your account from a single trade. Potential profit and loss are the two sides o the same coin. You cannot forget about losses because you are dreaming about the profit only. Coin can turn any side. Be ready for both.

Coin can turn any side. Be ready for both.

3. Tips vs. Learning

When people start trading they often run for tips. Tips cannot make you successful, learning can! You should look for a mentor. There is nothing wrong in that. In fact, the success and failure of an experienced trader helps you a lot. However, the problem occurs when you try to replicate their success and ignore the failures. You should focus on becoming self-sufficient by keeping eyes on both profit and loss of your mentor. Learn from everyone but don’t copy them. Because you can copy everything but psychology. Here we have something that you can learn from our pro traders.

4. Averaging Down everything

Averaging is a great way to turn a small loss into a blunder red. You should not average such an extent that makes you out from the game of trading. When you average a losing trade you adding up your losses. No one likes a loss, but taking small red is much more better than losing your entire account. Market is supreme and vast. You will get plenty of opportunities if you save your capital. 

You will get plenty of opportunities if you save your capital. 

5. Having No Stop Loss

Another blunder the new traders do is they don’t understand the importance of a stop loss. SL helps you to cut down your losses. We have already discussed that profit and loss are the two sides of the same coin. Let it rolls. Be smart about cutting losses early and you will have a much stronger chance of succeeding in the markets.

Be smart about cutting losses early and you will have a much stronger chance of succeeding in the markets.

6. Revenge Trading

You should avoid revenge trading. It is a big killer than anything else. When you take revenge trading, you trade emotionally. By doing this you invite disaster. You don’t trade for making up losses. You only trade when your set up allows. When you feel your emotion is becoming bigger than your set up, sit back and think twice. Don’t make a mistake that you regret later.

7. Risk Reward

Try to go in that trade only that gives you a good risk-reward. Don’t go in a trade that doesn’t give RR at least 1:3.

These are the common mistakes that new traders commit. There are many more. I might have skipped those. If you are a trader and feel I have not included some other mistakes, you can write into the comment box. You can also suggest how you overcome those mistakes.