The most critical step in any trading education is that of becoming aware of what we don’t know. In trading, we certainly need to become aware of what to avoid as well as our own vulnerabilities. Let’s take a look at some mistakes traders make, and the consequences of those mistakes.
One hard-to-spot mistake at the start of every trade education is that of having unrealistic expectations about trading. The emotions the market brings up in us generally fall under two categories: fear or greed. Having unrealistic expectations about trading occurs when a person gets greedy.
A good example of this–one that many new traders succumb to–is expecting to make $5,000 a month on a $10,000 account. This is simply not realistic, and the trader who expects to do it hasn’t looked at the returns professional traders typically make. Fifty per cent per month would mean a return of 8,549% a year. Anyone ever heard of someone making that kind of money on their money? Pros generally make 100-200% per year. A net at the end of the year of 241% is considered very respectable, which works out to 11.8% per month. This is much more realistic to plan on.
Greed, plus stories of phenomenal results, can give us unrealistic expectations. Stay reasonable and you’re much more likely to get where you want to go. A trading education is not something you can obtain overnight. Besides, doubling your money every year is nothing to sneeze at.
Progressive gains do add up over the course of a year. One helpful hint is to remember to look at longer time-frames. Keep the longer time-frame in mind and you’re much more likely to be at ease in the moment.
Another common mistake that comes from not being aware of our vulnerabilities is guessing at what the charts and patterns mean, and acting on that guess. It usually goes along with using indicators that you don’t fully understand. These are the decision-making tools you’re using to make decisions about your money. Make sure you fully understand what you’re working with. Don’t over-estimate your trading abilities.
Similar to acting on guesses, is trading hunches. This is when you just have a feeling. While there may be a few times that your gut will be right, for a new trader, most likely, it is the voice of an emotion: wanting to be in the trade; the need to be right, etc, or something that you overheard that’s whispering in your ear. Again, the indicators that you trust are are your decision guidelines. Follow them, don’t violate the rules of your system. When you trade hunches, you put yourself at substantial risk. This mistake usually comes along when you think you’ve got the markets outsmarted. But it’s better to stick to solid information. Remember, this is simply a game of probabilities, and good information, properly used is the best way to keep the odds in your favor.
Becoming aware of what we don’t know takes asking a lot of questions when we’re first developing a trading education. If you find yourself continuing to struggle and don’t start asking questions or seeking help, you’re acting from pride. People want to be Superman, their pride keeps them from asking what may be “stupid questions”. If you suspect you may be in this position, the first thing you should do is ask yourself a serious question: “Are you here to make money, or look good?” There are many free trading educations out there so swallow your pride and banish your vanity and start to let your results do the talking.