5 Most Common Trading Mistakes

In this article, We are going to see about the 5 most common trading mistakes, what are the 5 Most Common Trading Mistakes does in Trading? How retail traders are learning facts and How to control emotions. Let’s go inside and take a glimpse.

5 Most Common Trading Mistakes

5 most common mistakes what a Trader does in Trading are as follows:

1. Proper Trading Plan

The first mistake that is usually done by retail traders is that they don’t have a proper trading plan.

What is proper trading plan?

Just because you are trading doesn’t mean you should have a trading plan.
What most retail traders do is they don’t know why they take a trade,
they take trades without a reason.
For example let’s say before picking a trade,
If you ask why you have taken this trade some will say, I opened the laptop.
Market was on top hence I went for sell or the Market was down and so I chose to BUY.
So this is one category of traders.
many people, One more category If you see another set of people ,they will look at candle sticks.
If three candles go up , Immediately they will go for buy,If three candles go down , Immediately they will sell.
This is how they trade, They don’t have proper trading plan.
So the first thing is What we need to have before taking a trade,
I should know why am I taking this trade.
Many people don’t even know why they are picking a trade.
In simple words, We will not think before we take a trade,
We will think only after picking a trade and ponder why did we take it.
This is what happens to every retail trader.
So going forward whenever you pick a trade please understand why you are picking a trade and then go for the trade.

2. Lack of Practice

The next common mistake is Lack of Practice.
Before taking a trade, I have little knowledge on why am I picking this.

5 Most Common Trading Mistakes — Lack of Patience

For example, simple logic without knowing technicals, few people will trade with indicators they will say I am practicing using this indicator they will trade based on that indicator.
Some of them most of the time, don’t have a proper practice, many people will practice something, even without knowing if that’s the correct practice.
This is also one of the problems we need to have proper practice and one more thing is practicing trading in the live market is the actual practicing.
Practicing paper trading is not considered as practicing, My advice is, Forget Proper trading.
Paper trading is like cheating ourselves.

What is paper trading?

I will give you one example, A set of people whom I know, where trading in a group first, They were doing paper trading while doing it.
They will show the daily report to me Saying Sir if you have 5 lakh amount, they will show some profit on paper trading.
Daily they will report 20k to 40k as their profit after some 20 – 30 days,
After realizing profits of 30K – 40K on paper trading they were like, OK, This is going good,
and They invested 5 lakh and started trading in live markets.
After trading in live markets, they reported 5k, 10k losses daily.
After the loss, The team again went back to paper trading,
They started getting profits again, the same as before.
Paper trading is nothing but cheating ourselves.

For example, In paper trading even if we don’t get an entry, we just go with the flow thinking in mind,
I have bought at some point and sold at correct points.
This is how we are cheating ourselves.
Never go for paper trading even if you take one trade,
If you want to practice Just take one share, not a big deal.
Even if you take one share , Do the trade in live market, Then only you will know if your trade hit the target or the stoploss or did you get proper entrywe will just write as we wish on paper.
So never do Paper trading that is the second major mistake , what a retail trader does alright.

3. Emotion Trading

The third important mistake is Emotion Trading.
Trading emotionally in market is one of the biggest problems when we say Emotion.
The first thing I want to bring to you attention is FOMO.

What is FOMO?

FOMO means Fear of missing out.
FOMO is nothing but chasing the market.
Let’s take a small example, While you are walking if you notice two people talking secretly,
You will be interested to know what they are talking about because it is human psychology,
Once you know it is a secret immediately you would want to know what it is.
They are saying something, What if I miss anything important.
So that emotional psychological impact has been there with every human being.
WE cannot change it, because it is normal and natural.
Automatically we would be curious to know, What if we miss something important?
We will do the same mistake while getting into trading lets see what it is.

Let’s say now we know before taking a trade why we have taken it.
Next assume you have completed your practice.
Next one, Now you know you have to enter at a particular place and this is the target and this is the stop loss.
Just before the entry , Let’s say you were waiting to enter at 100 RS,
You have decided if the market comes to 100Rs you will go for buy, the market is at 108, keeps coming down to 106,105 at 104.
If it goes sideways or if you see a sudden change in trend immediately with the fear of losing the trade, immediately we just try to enter at 104 instead of 100.
After entering , we will see that market is going downwards now then automatically we get physiologically impacted than we will blame ourselves and start thinking as we could have waited on the same day.
If it hits stop loss as well, You will feel further bad. if 98 was our stop loss, instead of 2 points, we would have now lost six points.
So that is because psychological people are impacted by FOMO. That is fear of missing ou, Do not fear.
We can avoid FOMO only with proper practice and patience.
You will have patience, Only if you have strong knowledge.
Many people in the market don’t have patience,
They want to do everything immediately without waiting.
People behave as if every entry is giving them profit, In reality, people just lose their trade.
That is because of the urge they have to get in the market.
Don’t try to panic and take Trade, Be patient enough as I said earlier,
Patience will come only if you have strong knowledge.
Let’s say two people are going from Chennai to Coimbatore in a Car the Driver knows it will take 8 hours for the journey,
Let’s say, another person doesn’t know anything about the duration.
Sitting next to the driver, He will keep on asking the driver, like, When will we reach? This is nothing but panic because they don’t have patience.
He didn’t have the patience because he didn’t know anything about his destination and the distance.
Patience doesn’t come, because you don’t have proper knowledge in the first place, the driver has the proper knowledge that it will take 8 hours and he has to keep on driving without any choice.
he is patient, so the person who doesn’t have sufficient knowledge, Lacks patience, first and foremost You need to have proper knowledge, and be confident about the entry point.
Only after that, you should go for an entry.
Try to gain more knowledge.

4. FOLM “Fear of Losing Money”

The fourth important point is called FOLM: Fear of Losing Money.
First, we saw Fear of Missing out, Entering early due to this fear.
Another category of people who have fear of losing money.
They might have chosen the correct entry but because of this fear,
they drop out as the price approach their entry let’s say 100 Rs,
fearing if they would lose money or if their stop would get triggered.
For example, with some people, as the price gets nearer, the pressure goes up.
You also could be one among them that is again because you lack proper knowledge.
I might have practiced enough but when I reach near to the point, I may get psychologically impacted.
At that point, With the fear, we tend to cancel the order as the price comes near our entry price.
That is because of your fear of losing money if you come in with a thought that I don’t want to lose, I will make only a profit.
Then this Market will not suit you,
In this market, there is no 100% strategy.
There is no 100% guarantee that every trade you take will fetch you profit because we are trying to base our trades upon facts,
with the knowledge of whatever happened in history, we are trying to predict the future.
It is not mandatory that predictions need to be 100% accurate, Even as a professional If I take 10 trades I expect only 7 or 8 trades to give me profit.
All the 10 trades that I take would not be in profits.
Because there is no 100% perfect strategy for any trade you take, You are at risk.
Only if you are ready to take risks, Only then you can make money in this market.
It is not only in the stock market if you take any kind of business, but there is also a certain amount of risk involved.
So only if you are ready to take risks, You can make enough profits.
Try to control your emotions, if you hesitate to trade because of fear, You may never take a trade.
You should know how to manage the loss.
If you have fear of losing, then you should have proper risk management and money management.
In Risk management, if I know the loss and profit that may occur with this trade,
Only then I will execute that trade but without knowledge, I will have fear and because of that fear I may never trade.
One Should follow proper Risk and Money management, My advice is 1:2 risk factor is a very good trade.
Let’s take an example If I am taking risk of 1000rs knowing I may get 1500 to 2000rs.
It is considered to be a very good trade from my experience.
I am saying that if you take 10 trade, Even if 5 trade goes on loss.
You will still make an overall profit with the other 5.
Minimum any trade above 1:1.5, You can take with proper money and risk management that is your fear of losing money.

5. High Leverage

5th one is using high leverage In the Indian market, We call Leverages Exposures.
If I have 50k, the Broker may offer me 10 times leverage on that.
That means I can buy shares worth 5 lakhs with just 50K in hand.
Thinking I can make 5K rs profit instead of 500 rs, People opt for more leverage.
There is a major problem in using leverage.
As a normal retail trader after practicing, you might have gained a lot of knowledge, You have practiced a lot, You know how to control your emotions.
After doing all this, once you enter the market, for a normal person to know if he can sustain in the market or not.
Minimum he needs to do 10 trades to get an understanding if he is doing it the right way or not.
The Problem with leverage is, Let’s say you have 1 lakhs, Only if you divide it into 10 trades, you will get a fair idea about your strategy.
but because of using leverage, your account may get washed out with just two trades.
Once your account gets washed out, You may go quit trading thinking this will not suit us.
If you had done those trades with proper risk and money management,
There are high chances you might have had money to trade after three losses and you might end up with profits.
With leverages, we are cutting down our own opportunities.
So don’t use a higher level of leverages, in my opinion, it is not advisable to use leverage.
Once you are very sure about a certain trade, You can use small leverages.
but don’t use leverage regularly With leverage it is always like cutting your own opportunities,
So don’t use a high number of leverages.

Final Words

These are the 5 Most Common Trading Mistakes that a trader makes through my experience I have shared with you while reading this you might have noticed that you are also doing these common mistakes In case you want to come out of this, the only thing I will tell you.

All these mistakes are because of psychological emotions in the market Once we enter the market, Our emotions take precedence and control us.

90% of the time it is emotions that control the market because, Emotions make the market move one may think to sell and others may think to buy, So what we think is what we do.

Life is like our thoughts, Similarly controlling emotions is the first thing, emotions are born with us, We cannot change it overnight to control emotions. we have technical analysis.

Technical analysis only holds 10% Weightage, Rest is 90% is this emotion.

This 10% we use, say for an example, support resistance, trend line, or Fibonacci. It can help us determine the exact point.

These facts are nothing but technical Trading with assumptions is Emotions, Facts take precedence over emotions and help to take proper trades. It prevents our emotions from making trading decisions.

That is why professionals use proper technical analysis, they don’t take trades upon assumptions, they take trades upon facts.

One should follow the Risk Management, Money Management, and Fear and Greed concept of the market to avoid big losses.

I hope you like 5 Most Common Trading Mistakes, and if you like the article, then do like and comment. happy investing.

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5 Most Common Trading Mistakes

5 Most Common Trading Mistakes