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6 Lethal Mistakes Novice Traders Should Avoid

6 Lethal Mistakes Novice Traders Should Avoid

By Jelle - 20-Aug-2023

Trading is easily one of the most challenging jobs (or hobbies) anyone can pursue – especially crypto trading. But it is immensely popular and can be very rewarding. Minimizing mistakes and maximising profits is the key to success.

So, how do you avoid mistakes? This article lists some key mistakes that new traders usually make – and they are often expensive mistakes. Each section explains why and how to avoid these mistakes, which should help new traders flatten their learning curve and become more successful, faster. 

  • Trading With No Plan
  • Getting Rich Quick
  • Not Keeping a Journal
  • Taking Oversized Trades
  • Switching to New Trading Systems
  • Blind Copy-Trading

Trading With No Plan

Lots of new traders underestimate the importance of having a plan. Setting trading rules, testing them through trial and error (again, losing money is natural), and adjusting their rules usually sounds like a lot of unnecessary work. But without a plan, trading becomes gambling. Knowing where to take profits, where to cut losses, and where to add to a trade or investment are essential questions. Clinical discipline and self-honesty when executing trades is the most important habit any trader can develop. 

Getting Rich, Quick

One of the worst goals any new trader can have is getting rich quick. But lots of traders convince themselves that it’s possible – and even if they do not say it out loud (or on Twitter), they subconsciously believe it. Especially during the heat of a bull run or simply by scrolling Twitter and seeing seasoned traders post their account balances or trade setups, lots of traders make it their primary goal to get hilariously rich, fast.

But most traders fail – in fact, they usually lose most of their capital within the first few months of trading. Greed kills trading careers more often than anything else. The market always humbles this type of trader.

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Experienced traders will always reiterate the importance of only investing what someone can afford to lose and to be prepared to lose your initial investment. Consider losing money as tuition – almost every profitable trader has first lost money before they figured out a successful trading system. Anyone who wants to trade must be ready to lose money first. 

Not Keeping a Journal

Many traders successfully navigate the markets without a trading journal, but in reality, every trader keeps some form of tracking log or trading journal to review their performance. Whether it’s as bare-bones as reviewing trading history on your exchange account or writing market thoughts in a physical notebook – every trader needs to track their trades.

Why? Because improvement comes from watching mistakes and focusing on strengths. Finding areas where a trading system is successful or failing is impossible without some form of journal or log. Conveniently, the website where readers are seeing this article is the best crypto-native journaling tool. Coin Market Manager automatically syncs historical trading data and surfaces dozens of data points to help traders improve their strategies and execution. From day one, traders should keep a journal. 

Taking Oversized Trades

Lots of new traders also put on positions that are much bigger than they should be. Veteran traders sometimes also take trades that are too big – the fat finger error. But novices often take too much risk on their early trades because their account balances are small. A few big trades that payout will grow my account, they tell themselves. But this is a recipe for disaster, not generational wealth.

Entering trades with way more capital than a trader can realistically afford is a dangerous game. When the trade wins, it feels great. But when it loses, the results hurt even more. Trading with lower capital will reduce the size of each win, but it also protects from financial ruin. That’s a worthwhile tradeoff. 

Switching to New Trading Systems

Jumping back and forth between many forms of analysis or using too many forms of analysis at once considerably hinders the process of a new trader mastering their technique. Refining a trading system takes time and work. If a tree doesn’t instantly bear fruits, it does not mean that it never will. 

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In the early stages of my trading career, I spent a lot of time learning everything there is to know about a wide range of indicators. I tried out many indicators, and jumped back and forth between them if I did not have instant success. This approach set me back significantly. Take time to fully understand new tools and give them time to work or fail. Don’t immediately quit a strategy because the first few trades were not huge successes. 

Blind Copy-Trading

One of the last but most important mistakes to avoid is blindly copy trading someone else. This mistake is attractive to new traders who think veterans have secret knowledge about the market or for traders who don’t see a trade in their own system but are itching to take on risk. Every trader needs to make their own decisions.

This does not mean that advice, insights, or suggestions from other traders aren’t valuable. But they should not be blindly followed. Copy trading will not make anyone a successful trader. Studying ideas and deciding if it fits their own unique system and risk tolerance is the best approach for every trader. 

Embrace Every Mistake

Every trader loses money. Learning from these mistakes separates winners from losers in the long run. The adage that “trading is a marathon, not a sprint” holds up well. Avoiding the mistakes explained in this article is guaranteed to make that marathon less painful for newer traders.