New to trading? Avoid these mistakes to protect your money

Is there any tool, indicator or market approach that has 100% accuracy? Is there any school of finance or economics that teach you how to trade to be profitable? The answer is clear and straight forward, NO!

Trading the markets its all about the decision in certain moment; to be right in price direction and timing. But there are tools and different approaches that can help new trades to “not lose the money” which should be the first goal of everyone. So before you start making profits you have to set your goal; Not to lose money in first year or two. Only when you can achieve that, then you will be able to move to second goal; Making profits. So stop asking yourself what professionals do to make profits, but rather ask what those do who are losing money, to learn from their mistakes.

I described some of them below; Its actually Step-by-Step Mistakes that traders do that can lead to closing an account.

1. Account size

The first issue is with the money in your account. In my opinion 90% of traders are losing money, not because they would not know how to trade, but because they have too small trading account, but still want to make large profits to cover living costs. There are a lot of brokers with promotion offering trade account for 500EUR or less. Brokers know that there are a lot of retails traders with 500 euros in their pocket and not so many of those who have 20k for trading account.

So bottom line is if you want to trade you need money. That’s it!

In my opinion even new retail traders would need +20.000EUR minimum to be able to trade normal risk sizes, with normal leverage and allow acceptable draw-downs without any headaches. There is also EU law regarding the trading leverage which is another reason why account size matters.

2. Position size

So if we consider the first issue described above, then we know where “too big position size” comes from. It’s not because they want risk a lot of %, but because simply traders have small accounts, and they will not trade micro lots to jump few cents up and down. So I understand them why risk on small account is not 2% per trade, but most likely 5-10%. Unfortunately, this can lead to a disaster very quickly.

Think about that, if you risk 50EUR-100EUR per trade on 1000EUR accounts, that’s sounds OK, right? Based in size of the money, that's not big amount so it seems ok, but based in percentage is not, and that's where traders fail. What if you would have 100.000 EUR on your account, would your risk 5000EUR- 10000EUR on each trade? I am sure your answer is no, because you don't need to make that big amounts to cover normal living costs.

3. Not using stops, not closing a losing trade

So lets assume that new trader avoided first two mistakes. He has enough of money to trade, so he is fine with risking only 1% of the account, what is the next mistake that can lead to a disaster? I think it’s about no proper exit scenario on a losing trade. I met people who were making nice profits at the start but then suddenly their account was getting killed by just one or a few trades that they didn’t close when they should, and it just become worse and worse for their account. They were praying, waiting for position to turn in their favor at least to minimize the loss that went extreme, but in many cases this won’t happen; it just goes against you.

What is the solution?

Calculate risk exit point, before your enter a trade! You have to admit when you are wrong! And this is crucial, to go out of a losing trade and invest money somewhere, where you see a good structure. Why to sit and wait on a train if this one is already gone? Rather look for taxi or bus station.

4. Revenge trading

Were you short, and you got stopped out and then you shorted again because market moved slightly lower after your first position was out? Or did you open a buy trade when stop on your first trade was triggered? And what happened in most of the cases, you were probably being again stopped out and lost even more than you planed. Yes, we have all been there; its’ called a Revenge Trading.Solution?

Just do not do it. Simple as that. If you were stopped out, you are done with that trade; go outside, step-back and do mind reset, relax! Come back next day with new ideas, new trade plans.

What about Trading mistakes based on technical approach?

Well, not easy to be smart here as there are plenty of different methodologies how to trade, and it’s not really just a one that may work. But here are a few points that may help;

5. Early entries, be patient

If I identify resistance where I want to sell, I do not sell immediately. I normally wait on market reaction around that zone and if I see reaction lower then this is my confirmation and I go with the flow. I want that market confirms my bias first!

6. Closing winners too early

You are long, and made some nice profit so far, into 3:1 risk-reward where you want to close. That is fine, but since you see market in strong upward momentum, why to close trade here since there is always room for even more extended legs that can bring you much more profits. I also identify my reward targets, but when these are achieved I will aggressively pull my stops close to market price and will still leave some options on the table since market can always surprise for a larger move. I do not want to close my winners too early. All what I want is that market tell me when to go out, and till then let my profits run.

7. Trade clear patterns, on different markets

What new traders do when they join trading field? They open chart of EURUSD, or GBPUSD and they will trade only these two pairs. You cannot trade and be focused on only one instrument all the time. You cannot trade EURUSD in and out constantly; it wont work well since market conditions change. Your portfolio should be across different assets, because sometimes FX will be moving, sometimes it wont. Sometimes stocks will be on the move, next time only commodities. So it’s important to trade and focus on clear patterns through different markets. You have to recognize the clear structure in first 20seconds, if not then market is not clear, so move-on and search for some other clear patterns somewhere else.

Look at cryptocurrencies per example. They were in strong uptrend last year, so it was perfect time for looking a set-up. What about now, in 2018, are opportunities here? I don’t think so. What I think is that these traders should now look for trade ideas on other markets like FX, stocks, metals, etc. But a lot of market participants who traded cryptos aggressively last year were new to finance, so that’s why they are lost now, and keep trying to buy cryptos, rather than moving to other assets. It takes some time before you move from on to another since markets act differently so time is needed before you are trying to understand it each particular market since they have different personalities.

8. Indicators, and robots

Do not relay on indicators or robots 100%. RSI, MACD and similar are calculated out of a price, so firstly you need market price to build RSI or MACD, so how can these indicators then show you in which direction we go from here? However they can be helpful anyhow but only to confirm your personal opinion about the market move. It’s the same thing with robots; some may work very good, but still human mind has to be involved to avoid some of bad market signals.

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