13 trading mistakes to avoid as a beginner.
Number 13 will surprise you
Hello Traders,
Hope you are all well and ready to put in the hard work.
Speaking of which, I embark on the Long form technical analysis masterclass journey tomorrow with 30-odd traders. Pretty psyched about it. (If you don’t know what it is I will leave the poster at the end of this article)
As I was preparing for the masterclass and the 1st session tomorrow, I thought why not write about the top beginner-level mistakes of a trader? Most of these I have committed myself and I am sure many of you will also connect with.
So here are my top beginner-level mistakes (in no particular order):
Trading is deterministic:
No, it’s not. But we all think that there is a holy grail. That if we work very hard, we will figure out everything there is. That if we put in enough effort and enough research, there is no way the trade will fail.
Alas, Trading is a game of probability. Even if the set-up has a 99% chance of winning, that 1% chance of losing might materialize with your trade.
Failure to accept RISK:
And since we think that there is a deterministic element with trading, we fail to accept the risk of a failing trade. Failure of this risk acceptance leads to a smaller loss turning into a big loss, which then turns into a mammoth account-wiping loss.
Start respecting the risk involved with trading asap.
Trading without a Stoploss:
Since it is difficult to accept the risk at the beginning (mindset development takes time), you need to save your account from getting wiped from yourself. This can only be achieved by employing a stop-loss order. Having a pre-defined exit order punched at a certain level will save you and your account, especially if you are a beginner.
Trading without a Set-up:
This is very common. If you haven’t had proper training and most of your training is tips from social media, then you are nothing more than a headless chicken running around yourself to exhaustion. Only fatigue and frustration await you.
Acting on FOMO:
And because you don’t have a set-up or a system, you fear that you are going to miss all the good trades (good according to twitter and telegram). Because of this FOMO, you go on to commit several other blunders and develop a bunch of these unhealthy habits all driven by FOMO.
Buying overextended stocks:
Because of this FOMO, you buy a stock 5-10% away from its perfect entry point.
Read this article below I wrote some weeks ago to know what is the perfect entry point
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Buying after a 30% correction:
After missing a stock that had run away and never looked back that has only now fallen 40% off the peak, finally it’s your chance to buy.
Don’t. Just don’t. The stock may have topped and is now in a stage 4 downtrend; and that the pain is only just beginning.
Reluctance to buy at 52-week high:
A stock at its 52-week high or all-time high price will look very expensive to you if you. But you fail to understand that a great stock will hit a 52-week high every day or week.
Not cutting losers:
And since you don’t buy a winner, you buy the 30-40% discounted stocks in a downtrend; your portfolio is full of laggards and losers. But you will not sell it in the hopes that your buy price will come soon and then you will get out at breakeven.
Averaging down on the losers:
Worse even, you buy more of the losers with every 10% fall. Just to see a -15% in the account to be shown as -7%. But failing to realize that your loss is still the same or worse is going to be even more now.
Selling your winners early:
You are too stressed by your losers at this point, that a couple of winners you score on the way you are fearful of them giving away all the gains and them turning out to be losers too. What you do is end up selling them for a measly profit of 5-10% and miss out on a bigger move.
Too many Stocks in the portfolio:
As you aren’t trading a system or a set-up and none of your holdings hold enough of your own conviction, you have very poor position sizing and eventually end up with so many names in your portfolio that even a 20% gain in one ends up NOT moving the portfolio.
Too many indicators:
You have very less to no experience in reading the price volume action of a stock correctly which tells you everything about it and therefore fall into the trap of using indicators. In search of that magic indicator and that magic indicator strategy, your charts look like this below.
With their signals clashing with each other, you are almost driven to the brink of insanity. PS: This was my Zerodha chart a couple of months ago. F**king Hell mate.
So, that is it. Apologies, if I forgot to mention any other classical mistake. It’s late and my eyes are barely open.
If I remember more, I will make sure to tweet them as hot takes on my Twitter. Click here to follow me there.
If you wanna add any of your classic beginner-level mistakes, please comment and share with us.
Have a great weekend. Get on with that weekend routine of yours. And I will see you next week same time.
Cheers
~SH
Here is the poster for my masterclass for those of you who are curious. More information on my pinned tweet on twitter.
