7 Biggest Trading Mistakes to Avoid

I’m not exaggerating when I say this: if you can somehow manage to avoid making any of the seven mistakes I’m about to share with you, you will instantly become a better trader. It’s important to know how to trade, but it’s equally important to know how NOT to trade. These are the seven biggest mistakes I see people making when trading. Let’s jump straight into it.

Mistake 1: Entering Too Late

The first and most crucial mistake I see people making is entering too late. Look, I completely understand why people make this mistake. It’s a psychological emotion embedded in our heads as human beings, and that emotion is the fear of missing out. If you don’t know this already and you’re a beginner trader, you never EVER want to trade with emotion. It’s a lot easier said than done. If you actually pay attention to all these mistakes, almost all of them are emotionally driven. The sooner you stop trading with emotion, the sooner you will start making money. Even the best traders get caught up in their emotions every once in a while, and sometimes it’s hard to realize when it’s happening to yourself. But that’s exactly what separates the profitable traders from the unprofitable ones. It’s just one of the things you slowly get better at as you gain trading experience.

The most common time people trade with their emotions is when they start thinking they are going to miss out on the party. I see this happen all the time. You look at the chart and spot a really strong resistance line. You know in the back of your head that if the price ever crosses this line, you can be pretty certain the price will go up from there. So your initial plan is to enter right when the price crosses this line. Now, when day trading, a lot of the time you’re looking at multiple different stocks at the same time. You have to look at screeners, news, different indicators, etc. You come back to the original stock, and while you were looking at some other ones, there was a sudden spike in price, and the price skyrocketed past the resistance level just as you predicted. The only thing is, the price is already way above the line, and you’re not in the trade.

This is the exact point that separates a great trader from an amateur. The amateur would start feeling emotions, thinking if they don’t enter right at this very point, they are going to miss out on so much profit. So they enter as fast as they can, even though the price is way above their initial entry mark, and they are taking on much more risk entering at this high of a price. A professional trader would have realized what was happening and just called it a missed opportunity, then started looking for other and better plays. Or maybe even waited for a pullback to happen so they could enter at a better price with less risk. My point is, if you’re late, you’re late. Don’t get caught trying to chase the party and get burnt because you entered at the top. Most of the time, it’s going to look like this: there was a sudden spike, you entered late, and it ended up being the top, and it started falling right after you entered. Stick to your strategy, stick to your game plan, and don’t change it no matter what. If you missed the entry point, move on to the next opportunity or be patient and wait for it to drop to a better price.

Mistake 2: Using Too Much Money

Let’s go over a scenario that I’m sure almost all of you have gone through in your trading career. Let’s say you initially started trading with $100 per trade, a decent amount for you but nothing crazy. And your trading strategy is actually working pretty well. You’re following your strategy perfectly to a tee, and you’ve been insanely profitable every single day for the past week, making $500. Then you get this beautiful bright idea: “Well, I’ve been trading with $100 every day and I made $500. What if I started trading with $1,000 every day so I can make $5,000?” Now let’s say in this scenario, $1,000 is a lot to you. This is an absolutely terrible mistake, and I see beginners make this one so often.

Why is this a mistake? Well, it’s pretty simple. If you’re trading with an amount that you’re not okay with losing, it’s without a doubt you will start trading with emotion. Whenever the price goes in a direction that you don’t want it to go and your balance starts dropping a crazy amount fast because you are using a higher percentage of your portfolio, you’re going to start freaking out, making you panic sell more often than you normally would. Whenever trading with an amount that you’re not comfortable losing, it is almost inevitable that you will trade with emotion. Trading is not a get-rich-quick job. It’s about growing your account slowly and consistently. The sooner you realize trading is not a get-rich-quick scheme, the sooner you will start becoming profitable.

Mistake 3: Not Setting a Stop Loss

This mistake I’m sure every trader has made, and it ended up biting them in the butt because of it. Not setting a stop loss. Especially in day trading, you should always be using a stop loss. There’s no reason for you not to. Even with swing trading and long-term trading, there will always be a point in the chart where you can say, “If the price ever goes below this line, I simply don’t want to be in the trade anymore.” It happens all the time. You see a trade, it looks extremely bullish, you enter with excitement because you think it’s about to go to the moon. You don’t set a stop loss because your emotions of excitement and greed are blocking your clear thoughts, or you are simply just too lazy to set one. You go grab a coffee and come back, and the chart just absolutely tanked within 5 minutes, completely ruining your portfolio with a massive loss. And I’ve even seen it get worse from here. People will think to themselves, “Well, I’m already in here at the bottom, I might as well just wait it out.” Then the stock keeps dropping and dropping, and soon they absolutely have to exit the trade unless they want a $5 balance. There will always be a point on the chart where you don’t want to be in a position if the price goes below that point. Some of you may like larger stop losses, some of you may like tiny ones. It doesn’t matter how big or small it is, just have one.

Mistake 4: Using Too Many Indicators

The next mistake I see people making is using way, way, way too many indicators. I know, TradingView has millions of indicators and you’re almost like a kid in a candy shop that can’t choose which one they want, and just end up choosing them all. Sometimes I’ll look at beginner traders’ chart setups and their chart will literally look like this: they have millions of indicators, support, resistances, Fibonacci charts, and everything under the rainbow. There is absolutely no need for this. One, you can’t even tell what’s going on, and two, most indicators are just momentum indicators, so they all tell the same story. Stick to one strategy. Don’t think just because you add four successful trading strategies together that it will make one mega trading strategy. That’s not how it works. Use a couple of indicators, use one strategy, and keep your chart clean and easy to read.

Mistake 5: Not Trading with the Trend

The fifth mistake is a very easy one to avoid, yet people still end up making it all the time. Trade with the trend. In basically all of my trading strategy videos, they all have a common core strategy: trade with the trend. It’s pretty simple. You want to buy when the market is going up, and you want to sell when the market is going down. I know, it’s simple. But I still see way too many people trying to overcomplicate things and try to buy the absolute bottom of the market. They will see a stock that has been dropping for the past month and think they figured it out and found the exact bottom. What are the chances that out of the past month of the stock falling, you found the exact bottom right here? If a chart has been falling, it’s more likely to keep falling. If a stock has been rising, it’s more likely to keep rising.

Now you may be asking yourself, “How do I know if a chart is in an uptrend or downtrend?” Well, I explain it in depth in a lot of my other trading videos, but I’ll give a quick explanation. You get on your trading platform, add a 200-day exponential moving average. If the price is above that 200-day EMA, it’s an uptrend. If it’s below it, it’s a downtrend. It really is that simple. Now, of course, every trading strategy is different. For some strategies, an important part of the strategy is buying in a downtrend or buying the bottom. But for the most part, you should be thinking, “I’m only buying in an uptrend and only shorting in a downtrend.” It’ll make your life so much easier when you trade with the flow of the market.

Mistake 6: Lack of Record Keeping

This next mistake is one that a lot of people miss, and it can be the difference maker in you fixing your bad habits or not. Lack of record keeping. If you are a beginner trader or even if you’ve been in the trading game for a long time, it’s always good to keep track of your trades. You can always improve. Always. It’s important to look back at your past trades to see what you did well, so you can keep doing those specific things. But it’s also nice to look back at your past trades and see what you did incorrectly to help bring your emotions and bad trades under control. It’s always nice to have a trading log where you take screenshots or even a video of the chart before you even enter. Write down why you want to enter the trade in the first place, whether it was fundamental, technical, or from a news article. Write down the exact point of when you’re going to enter the trade, then when you’re going to exit. This will not only give you a direct plan, which is what you should have in mind before entering every trade anyway, but it will also show you if you yourself followed your own plan. Once you exit the trade, write down why you exited, what emotions you were feeling during the trade, what you did wrong, and what you did right. Keeping a trading log helps you achieve two goals. The first is to make money. The second is to become a better trader. You might not succeed on the first goal, but you will absolutely succeed on the second goal. You should always and forever try to become a better trader after each and every trade. No matter how much experience you have, you can always improve. Trading reveals your weaknesses that you never knew you had, but it can also make you a stronger person by learning from them. It’s important to learn from your mistakes, not just keep making them.

One of those mistakes is setting your stop loss too high or too low. That’s why in this video, I tell you a secret trick that I use all the time to help place my stop losses in the best spot possible so you don’t get stopped out as much, but it’s still an efficient stop loss. Go check that out, and I’ll see you guys next time.

Read More: Trading with Trix Indicator and Market Profile for advanced strategies