Online trading is seen by beginners as the land of opportunity. Indeed, there is a concrete possibility of achieving the desired success and earning a lot of money. However, the chances of the adventure ending in failure are not low at all. In short, we are talking about a complicated activity that exposes the individual to many risks.
This is especially true if some particular mistakes are made, which are certainly frequent in those who have just started, but also invalidating and capable of hindering
the race for profit from the very beginning.
In this article, we discuss some of the most common mistakes made by beginners, mistakes that concern
technique, risk management, and emotional management. We will also provide some tips on how to avoid them or, once made, learn from them and set the stage for more profitable trading activity.
The Technical Error
The first mistake is also the most common one. It concerns
technique, understood as the wealth of knowledge and skills that a trader can use for their investment activity. Well, the mistake consists of
"jumping in" too soon, that is, when this wealth has not yet been acquired, at least not completely.
It is a very frequent mistake because the communication of some Brokers tends to send a wrong or at least misleading message, according to which trading is a relatively simple activity, within everyone's reach always and in any case. Let's be clear, potentially everyone can become profitable traders, but only if they take the necessary precautions and train adequately.
Trading without having the skills transforms the investment activity
into a kind of gambling, entrusting hopes of success to chance. In almost all cases, unless there are unexpected and anyway random strokes of luck, the outcome is always the same:
a substantial loss, if not even irreversible, of capital.
The high dropout rate is precisely the result of this error, of the tendency to start without having the right cards. Therefore, we are talking about a price that many potential traders have paid at their own expense.
There is only one way to avoid this mistake:
studying. The aspiring trader must undertake a training path worthy of this name, starting from the basics and ending with specialization in a particular asset class. The possibilities to learn are there,
official and less official. The fact is that, regardless of the methods, the aspiring trader is called upon to fully commit to this training path. It is also advisable to start trading with
a demo account, to get the hang of it and to cut one's teeth in a totally safe environment, realistic but not exposing to any kind of risk.
The Risk Management Error
A very common mistake also concerns
risk management. We are talking about a fundamental activity, which aims to counter one of the most present phenomena in trading, regardless of the markets and assets involved: uncertainty. Markets are by their very nature "apparently" unpredictable and irrational. By virtue of these attributes, the market always poses significant risks.
It is therefore necessary to take serious precautions regarding risk management, especially from a perspective of modulating investments. In this regard, beginner traders tend to only superficially analyze the risk that a single trade generates. Very often, they launch into operations that potentially allow them to gain 10 but which, at the same time, threaten to lose 100.
Once a trade of this type is put in place, the investor tends to close the position as soon as a profit emerges on the horizon, albeit a small one. On the other hand, they tend to hold it even if at a loss, in the hope that the market can recover. Well, this is the worst way to manage risk. Often, it is the shortest path to economic disaster.
What to do? The only method to avoid this mistake is to base one's trading activity on canons of
greater rationality. To do this, it is necessary to study the potential risk of any move, evaluate in advance whether the game is worth the candle, always assume at least a moderately conservative attitude.
Of course, it is not easy also because the markets in the vast majority of cases are difficult to read. However, with a little patience and above all
a lot of study, it is possible to manage risk effectively.
The Emotional Error
Finally, the emotional error. Apparently, it might seem the least impactful of the three mistakes.
After all, what does emotionality have to do with trading? It is a typical question of beginners, of aspiring traders who have not yet assimilated the right knowledge about markets and their dynamics. In reality, the emotional and more properly psychological sphere has a lot to do with the speculative investment activity. Indeed, very often, emotions and psychological dynamics have a dramatic impact on hopes of success.
The truth is that the trader is a man, and as such
suffers from the condition of uncertainty. Now, the market is uncertain almost by definition. Hence, the enormous psychological pressures that the trader must endure. This dynamic always and in any case materializes, regardless of the trader's degree of experience and personality.
It is not possible to eliminate emotions from trading. However, it is possible to manage them, limiting the negative effects. Fear certainly harms the trader, but euphoria also has a negative impact, as it makes the individual more reckless.
How to avoid the emotional mistake? There are numerous methods. Here we describe two of them.
First, it is necessary to reduce the range of action of emotionality. This means subtracting the broadest possible portion of trading from discretion. In the vast majority of cases, this is possible simply by relying on a solid strategy, which in this case acts as an instruction manual, reducing the space for choices made on the fly.
The second method consists in carrying out an emotional, psychological, and mental training path. The purpose, in this case, is to assume the right mindset. It is a matter of doing a considerable amount of work on oneself, which can also be useful in areas other than trading.
