The trade went the other way, and you lost. If you’re new to trading and experiencing consistent losses after leaving your broker’s demo platform, there’s probably a reason for that. If you’re wondering, “should I and get a better phone for trading?”, that’s probably not the answer.
Check to see if you’re making any of these classic newbie mistakes before you place your next trade.
Gambling Instead of Trading
Trading and gambling are remarkably similar in many ways. After all, you’re placing a bet on whether a stock, commodity, or currency appreciates or depreciates in the market, right?
Professional traders understand that gambling and trading are entirely different activities. One is a game of chance, the other a calculated risk.
Professional traders limit risk in their trading activities by educating themselves on the markets, the technicalities of trading, and the fundamentals of managing money. Without a complete understanding of the subject, you can’t expect to win. A lack of knowledge is the number one reason why new traders blow up their accounts within the first three weeks of placing their first market order.
No Trade Plan
Being educated on trading means that you know how to plan every step of your trade. When to enter, when to exit, the targets to hit and the risk involved. If you’re placing an order based on a hunch in market momentum, you’re gambling, not trading.
No Risk Management
Where is the risk in the trade? Professional traders know how to identify the risk and reward of each move they make. No professional retail trader will ever risk more than 5% of their capital on any trade. Similarly, no professional would ever consider executing an order that does not offer more than a 1:1.5 return. If you don’t understand these concepts, get an education before you trade.
Holding on to Losers
Having no trading plan or initial risk assessment of the trade means that you’re more likely to become emotionally involved in the price action, especially when your losing. No-one likes to lose, and unless you have the discipline to cut a loser when it exceeds your downside risk target, you’ll end up taking significant losses.
Trading on margin and using leverage are two colossal beginner mistakes. Gambling with money on margin will bleed your account dry quickly.
Trusting Your Broker
Before you open your brokerage account, ensure that you spend time researching the best options available. If you place your capital in the hands of a “bucket-shop,” a term professional traders use for small brokers with no ethics, you can expect to lose. Unethical brokers use tactics like stop hunting to close you out of trades. Always entrust your money and your education to established professionals.