There’s no wonder most traders aren’t profitable; repeated mistakes can be costly enough to discourage you from trading.
Out of dozens of possible mistakes you could be making, any one of them can be critical if left unchanged.
1- Lack Of Preparation
Two of the most underestimated factors in trading are planning and practice. Most people think that raw intelligence or academic skills are enough to profit from the markets. News flash; they are wrong.
Underestimating the amount of effort that will be required to consistently make money while trading is not necessarily the fault of beginners; they are often taught that trading is an easy way of making money, and that anyone with a good sense of analysis can do it.
In reality, most people that are trying to convince you that trading is easy are profiting from it. If they really were honest, they would tell you how much practice and preparation is going to be required if you want to make a living trading.
A backtesting software and a notepad are going to be your two best friends if you want to start trading with confidence. Testing your strategy over hundreds or thousands of trades and analysing each of those trades is going to save you a lot of frustration.
2- Inability to control emotions
Although obvious, the list would be incomplete without mentioning the emotional problems that most traders are faced with.
The fastest way to empty your account balance is with anger. Revenge trading, increasing your position size for no reason and letting your instincts guide your choices are all examples of what can be expected from a trader that has not learned to control their emotions.
Having adrenaline rushes when winning big amounts of money can be as devastating as getting mad after losing trades. Emotions in general should be kept out of trading at all times if you truly want to achieve consistent and statistically predictable results.
You should setup your strategy so that there is as little decision making involved as possible. The more precise your entry and exit signals are, the least you are likely to mess something up with emotions.
You should also think of your entry or exit signals as green and red lights. If the light is green, you can go (you can enter or exit the trade). If the light is red, you cannot go (the setup is not good enough for you to enter a trade, or does not justify an exit).
Deciding whether you are going to commit to your take profits and stop losses should also be clear; it wouldn’t make sense to randomly exit a trade only if you get a “hunch” that something is going to happen.
You cannot expect your trading results to be consistent if your trading routine is not. Trading from 7 to 12 one day and then from 9 to 11 the next day is not going to be providing you with consistent returns.
As boring as that might sound, the most profitable traders are the ones with a routine that they respect every single day. Forget about the people that are trying to teach you that all you require is a laptop and you can make money anywhere in the world at any time of the day.
Trading should be boring. There should be no excitement, nor should there be surprises. Everything you do should be according to a statistically proven strategy that you apply on chosen currency pairs at chosen times of the day. A strategy that works when the market opens is not guaranteed to have a positive expectancy at night or in the afternoon when the volume is at its daily lowest.