3 Beginner Trading Mistakes, Complete with How to Overcome Them

Trading we often think of as an easy and instant way to get rich. So many traders ignore trading mistakes  and end up failing to make a profit.

What’s wrong ? Read on in the following article.

 

Summary :

  • There are several trading mistakes that you should avoid in order to minimize the risk of loss.
  • The mistake that novice traders make is often because they are reluctant to learn trading before jumping into it.
  • In order to make a profit, you can follow some of the ways we recommend when trading .

What is Trading ?

Buddy Finansialku, in English, trading comes from the word trade which means buying and selling or trading activities.

In the financial market , there are many financial products that you can trade.

Such as stocks, bonds, futures contracts (derivatives), commodities (eg gold index), foreign currencies, and precious metals.

Meanwhile, people who do this buying and selling are called traders , who make a profit with the difference in the selling price of an item or asset.

Trader Type

According to Investopedia, there are 4 types of traders based on their timeframe, namely:

  • Scalper , is a trader who trades assets in seconds to minutes (no holding positions or overnight positions ).
  • Day trader , trades on a daily basis (no holding positions or overnight positions ).
  • Swing trader , holding daily to weekly positions.
  • Position traders , hold monthly positions for up to a year.

 

Unlike investing, we usually do this trading in the short term.

With a mechanism that seems easy and fast, it makes many people think that trading is a way to get rich instantly.

As a result, they are also interested in becoming traders but are reluctant to learn it first.

Not infrequently, traders , especially beginners, often make mistakes and ultimately fail to make a profit.

 

3 Mistakes You Should Avoid As a Beginner Trader

The mistakes that traders make often occur among beginners who are just getting into the world of trading .

Here are some mistakes you should avoid:

 

#1 Mindset Mistake

If my Financial Friend thinks that trading is the answer to getting rich easily and instantly, that’s a wrong mindset.

Indeed, there are many people who become rich when they become professional traders, but it doesn’t happen instantly.

 

#2 Not Paying Attention To Psychology When Trading

There are 3 important things that you should pay attention to when trading , namely:

  • Emotional mastery (psychology)
  • Financial management ( money management )
  • Trading strategy

This is in line with the statement of a professional psychologist as well as a trader coach , namely Dr. Van K.Tharp. Dr. Tharp, that:

“Success in trading as much as 60 percent is determined by emotional or psychological management, along with the role of money management by 30 percent and trading strategy by 10 percent”.

Indeed, humans often make decisions in their lives based on emotions.

No wonder the losses that traders feel are caused by fear and greed .

So, how do we better control our emotions ?

  1. Realize that emotions play an important role in making decisions when trading . By realizing this, we can find ways to control it.
  1. Recognize and learn the basics of human psychology, one of which is about psychological biases. Psychological bias is an error in thinking rationalized by feelings.

In general, there are 6 psychological biases that traders experience:

    • Loss Aversion Bias , avoiding trading or investing for fear of losing.
    • Sunk Cost Fallacy , a feeling of reluctance to resell assets that have lost ( cut loss ), even though the possibility of prices to rise again is very small.
    • Regret Aversion Bias , regret trading because you have experienced losses.
    • Herd Mentality , has a mental bandwagon. Join in the ways and assets of people’s choices without further analysis, so they end up losing money.
    • Overconfidence Bias , when you have high self-confidence and optimism. So they tend to be reckless in making decisions.
    • Dunning Kruger Effect , a condition in which a person feels his abilities are much better than others. In fact, however, this is not the case.

 

By learning this, hopefully you can be more aware of and control your feelings before making a decision.

Also, make sure to have a calm feeling and a focused mind before starting to trade .

#3 Not Implementing Money Management Well

Trading means dealing with the rapid ups and downs in the price of an asset. If you don’t study it properly, you can become rich in minutes or vice versa.

So , make sure you apply good money management when trading .

Money management is closely related to the capital capabilities of each trader . So, following other people’s trading ways completely is not the way we recommend.

Recommended Trading Way

After knowing the mistakes in trading , hopefully you can avoid them, yes .

Then, what is the recommended trading method ?

 

#1 Build the Right Mindset

Before starting anything, especially trading , make sure you have the right mindset.

You do this by increasing your knowledge about trading , one of which is through my Finansialku Learning Trading ebook for Beginners (Trading) which you can access for free below.

FREE Ebook , Learn to Trade For Beginners (Trading)

Not only that, you can also learn to build a strong financial foundation for a better financial condition.

#2 Realize Psychological Bias

Recognize your emotions and be aware of any psychological biases that exist.

So that when you feel afraid or greedy, you can come back to your senses to make decisions based on facts, data, and logic.

#3 Create a Trading Plan

Make a trading plan ( trading plan ) to determine the ratio between risk and profit ( risk reward ).

So that you know when to enter ( entry position ), when to take profit ( take profit ), and when to end losses ( stop loss ).

#4 Do Risk Management

You can do risk management by setting a ratio between profits and losses ( risk reward ).

Don’t let the profits you get, instantly run out because you have to lose.

#5 Do a Periodic Review

As a trader , you should have a trading journal to do periodic reviews . You can create a trading journal that contains:

  • Trading date and time
  • The asset you are trading (eg stocks)
  • Trade direction ( buy or sell )
  • Entry and exit prices
  • Position size (how to manage capital and risk management when trading )
  • Trading results

Through periodic reviews , you can correct mistakes, develop trading strategies , change bad habits, and increase profits.

#6 Keep Learning and Adapting

One of the other traders ‘ pitfalls is feeling satisfied and smart so you don’t need to study anymore.

Yet the capital market is a dynamic place. There are many changes that can occur in a short period of time.

So, it takes a humble attitude to keep learning and adapting.

Leave a Reply

Your email address will not be published.