90% of traders fail and only 10% are successful. There is are lots of wrong things that 90% of the traders do that hold them back. So, if you are just starting out in trading then make sure that you do not commit the same mistakes.
There is a fine line that separates bad and unsuccessful traders from the good and successful traders. This fine line comprises certain attributes and characteristics that the good traders depict in their trading activities, unlike the unsuccessful traders.
1. Falling for the wrong dream
There is a huge misconception created by individuals regarding this forex trading industry.
Forex trading is portrayed as a luxurious and flashy business where traders can unlock unlimited riches with just a couple of clicks just in a couple of days.
The newbie traders are mainly attracted to forex trading for this sole reason. They look at forex gurus flashing their watches, cars, houses, etc, that they claim to have acquired through forex trading.
If this was really the case, that forex trading was actually an easy path to huge riches, then wouldn't everyone get into it?
Why would Elon Musk spend so much time building Tesla and SpaceX if forex was the key to everything?
This is the biggest problem that is prevalent in the forex industry and it is quite unfortunate that despite all the awareness on it, individuals still fall for this wrong dream.
I call it falling for the wrong dream because newbie traders are shown this rosy picture by forex gurus, marketing companies, and even brokers.
They are lured into this industry only to put them on the path guaranteed failure.
It is not that forex traders cannot achieve all this through their trading endeavors, it's just that it is not guaranteed and will not be handed over to you. You have to toil hard for it.
You only see the lifestyle or the end product, but you don't acknowledge the fact that it takes countless hours of research, backtesting, forward testing, planning, and practicing, and then still it is not compulsory that you will have made it.
Solution: Avoid looking at forex as a dream but rather look at it as a serious business.
Everyone takes businesses seriously and by treating forex the same, you can ensure that you do not take it for granted and approach it in the right manner.
Related blog post: Trading as a Business
2. No mentor, no accountability
We have been a part of an education system throughout our lives where we are taught things by someone else. The teacher is often an experienced person that looks to pass down their knowledge to us.
Having a mentor becomes crucial not just in trading but also in life in general. A mentor is someone that you can fall back to whenever in doubt or when faced with difficulties.
A mentor will greatly affect your learning curve and allow you to understand the skill to perfection. This happens because the mentors themselves have been in your shoes at some point of time in their lives.
They know exactly what you need at that moment in your journey and can certainly add immense value.
Without a mentor, you are simply another boat in the ocean with no idea as to the journey you are on. Yes, you can learn things on your own and navigate your way, but it will take time, time that can be saved if you had a mentor.
A mentor doesn't just teach, they also keep you accountable. They ensure that you follow the rules properly and that you do not deviate from your path.
This cuts down the time you'll need to put yourself on the road to success.
Solution: If you are someone that is just starting out and need someone to guide you and help you figure things out then I am here for you.
Check out the educational resources on this website and I believe you will find lots of value from them.
3. Analysis paralysis
Analysis paralysis basically means the inability to get a proper reliable conclusion to an analysis.
Traders these days have a plethora of tools that assist them in making trading decisions. There are various methods, tools, indicators that have been developed for the same.
Traders often try their hand out at different tools before they decide to stick with one or a combination of tools.
There is always going to be some group of traders that apply numerous tools for their analysis which will just make it difficult for them to actually arrive at a decision.
Different tools will give them different analysis and signals which may conflict with one another at any given point of time. This causes an analysis paralysis to the trader as he is unable to take his trades.
Solution: Trader should use tools that are enough for them to take trade decisions but not enough to cause them the analysis paralysis. Keeping things simple is an aspect very less traders focus on.
It is a human tendency that the more complicated a thing looks, the better it will be. This does not apply in trading.
There are thousands of traders out there, including me, that keep things very simple and are still getting decent returns, so why shouldn't you do too.
4. Shortcut to failure - No risk management
Financial markets are no risk-free markets, in fact, nothing in life comes without a risk. Traders enter into positions that cost them a part of their capital and it would be very bad if they were to lose this amount.
Hence a trader's most important job is no manage risks that they are exposed to because of the positions that they have taken.
Risk management is one the most important aspects of trading as the price can always go against us and can move fast enough before we can cut the losses.
Even the biggest of banks and funds have a separate department for risk management and their only job is to determine risk levels of trades and how to manage them.
Solution: Good traders always know the risks they are taking when they enter into trades and already have a risk management plan in place.
Even if the price moves against them, they will not be concerned as the manner in which the trade was structured, allowed them to protect capital and incur only small losses.
Related blog post: Risk Management and Position Sizing
5. Indiscipline delays success
Discipline is the obedience or compliance to one's plan or system and not getting deviated from it.
Successful trading is all about having a proper trade plan, and an edge in the market that allows the trader to exploit and capitalize on the price movement and managing risk appropriately.
Solution: Trading discipline is just following this system each and every time in every trade. Failure to do so will result in poor quality trades will low probability of giving complete profits.
Even the best of traders are guilty of not being disciplined in their trading activities at some point in their trading career.
6. No trade plan
A trade plan gives the trader the ‘why’, ‘what’ ‘when’, ‘where’ of the trade.
Whenever a trader is to trade any financial market, they must perform some sort of analysis on the basis of which they will take the trade.
This analysis will give them the ‘why’ of the trade. After performing the analysis the trader will be in a better position to know in which direction will the price move and why.
Once a trader performs his analysis they know which particular asset or a currency pair they will trade in and when i.e. whenever their analysis gives a signal to entry and whenever the price reaches their entry price level.
Hence, when a trader trades on the basis of a proper trade plan it allows them to determine their entry, target, and stop-loss price levels even before they enter the trade.
Following a trade plan is a sign of good trading methods allowing traders to take high probability trades and one of the biggest reasons for traders to be unsuccessful is the lack of a proper trade plan.
Solution: If you want to learn how to develop a trade plan then we seriously urge you to read our blog post on trade plans and it will make things easier for you.
Related blog post: 7 Factors to Consider while making Forex Trading Plan
7. Not maintaining a trade journal
A trade journal is a record of all the trades that a trader has taken. Traders normally mention their entry, exit, stop loss price levels, their reason for the trade, time stamps, profit, or loss.
Some traders take the trade journal one step above by mentioning their psychology during the trade.
Trade journals may seem like a basic log of all trades taken, but it is a valuable thing. Traders can mention various things in the journal which they can always visit back in the future to check their progress.
Trading is a lonely journey for most and the only person that can keep the trader accountable is he himself.
Solution: All successful traders have some sort of trade journal that they maintain and it has helped them keep track of their trading journey.
It is not that failure to maintain a trade journal will lead to the trader becoming unsuccessful but if they maintain one they can identify their shortcomings and can rectify them, hence leading to a successful trading experience in times to come.
8. Failure to adapt are signs of incompetent traders
The markets are seldom static and are always moving either up or down or sideways. Markets run on the sentiment and psychology of market participants which can change without any prior notice.
Every strategy that a trader develops works best during a market condition but may give poor results once the underlying market condition changes.
A trader having different strategies for different market conditions shows that they are an experienced one.
Traders that are not so good do not adapt to markets, they may not identify the changing conditions or may be completely ignorant to it.
This in turn takes a hit on their trading results as their strategy or setup will incur losses and eat into their trading capital.
Solution: Embrace change. Do not get disheartened if you face losses from time to time.
This should instead make you aware of the shortcomings of your strategy and should push you to work to make changes and improve things.
9. The most common mistake - No practice
Everyone knows about the saying that practice makes a man perfect, but not everyone adheres to it. Trading is a skill like anything else that needs to be practiced beforehand in order to excel at it.
There are many separate aspects of trading that need to be perfected in order to have a perfect trading outcome.
Solution: Successful traders spend hours practicing the skills that they learn before they actually trade fully-fledged.
This practice could be through demo trading accounts by taking paper trades or even on a live account with only a small amount of capital to take smaller positions.
Traders that have spent no time practicing will have a hard time when they go on to trade live as the rush of the waves of emotions that the trader goes through at those times are overwhelming.
Related blog post: Backtesting - The Key to Expertise in Forex Trading
10. The worst thing traders do - Having unrealistic expectations
Trading is not a get-rich-quick scheme and neither should it be treated that way. It should be treated as a business or as a source of income where small profits in the short term pile up to big profits over the long term.
The individuals that participate in the financial markets with the hope of making it big overnight will never be successful in their trading endeavors.
Their unrealistic expectations will not allow them to trade in a sound manner and they end up taking a bigger risk in order to get the returns they are hoping for.
Bigger risks can lead to bigger losses which will, in turn, wipe out capital at some point.
Solution: Have realistic and practical expectations from trading. Do not try to expect too much or else you ill be forced to take unnecessary trades in order to meet those expectations. It will only lead to further downfall.
11. Key to unsuccessful trading - Wrong mindset
Traders often have the wrong mindset or perception towards trading. The manner in which they approach and treat trading ensures their failure from the beginning.
The worst thing that they do is to think that trading is an easy and chill thing. They treat trading as something so casual that it instantly removes the seriousness out of it.
I have been trading forex full-time for quite some years now and have never taken it casual or took it as a chill thing.
I have had students that I coached in the past and I have seen a common trait among newbie traders that they feel entitled by the markets.
It is as if they feel that the riches and the success that is associated with trading must come to them or be handed to them, rather than them working for it.
This could seriously be one of the most frustrating things to see and we constantly keep drilling into the minds of our students that nothing in this business comes about easy.
Solution: Treat trading right and it will treat you right in return. Take things seriously and you will be rewarded for your actions down the line.
Failure to do so is only going to put you on the path to disaster and we are pretty confident that you won't like that.
Related blog post: The Elite Trading Mindset
12. The no. 1 mistake traders make - No proper trade psychology
Proper trade psychology is basically stopping one's emotions from taking over. Staying analytical in one's approach will allow the trader to follow his trade plan properly and not deviate from it.
I agree that it is easier said than done and even some of the best traders that have ever lived have had issues with taking control of their emotions while they traded.
If you are someone that faces difficulties in sticking to your trade plan and deviate from it from time to time then the reason for this is most probably that you are allowing your emotions to take the better of you.
I have said this many times and will keep saying it, trading is a serious business and we as traders cannot allow slacking off. We have to ensure that every action we take is of the best quality.
Emotions are just going to mess things up for you. You have to stay analytical and mechanical in your process. Function like a robot if it's required, but take control of your actions.
Solution: One hack to staying in the right mindset or psychology is to have a good trade plan and risk management plan.
This will lead to the trader having complete confidence in the system and during trades, they will not allow emotions to take over as they know that their system is a sound one and it will lead to profits in the long term.
Related blog post: Emotional Trading
What mistakes have you been making that spoilt trading for you?
Do let me know about the mistakes you made or have been making, that spoilt your trading results. Also let me know how you decided to tackle these issues and find a way around them.
Share this blog post with others and feel free to shoot your questions or doubts in the comments section, I'll get back to it all.