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Dear Trader,

If you are searching for solutions to common trading mistakes, then this article will be your last search. As this is perfect for you. Though you are a highly experienced trader, if you are not aware of the common trading mistakes, you can not find the solutions to become successful.

Trading Mistakes of Stock Market along with its exact solutions

Here we are going to discuss the common trading mistakes, why it happens and what is the perfect solution. So, let’s begin.

Trading Mistake #1: Expecting to stay profitable “ALWAYS”

Expecting to be profitable is a good thought. But expecting profitable at every point in time is not possible.

Though you have sharp technical skills, you still face losses. You will see your investments in red (i.e. Loss) even someone has more than 25 years of experience. Because there are only two possibilities in the Stock Market that either you are in profit or loss which is in the hands of Market. Only we can do is to hold or exit, that’s it.

This is a psychological trading mistake that we should avoid early.

Solution

Staying always profitable is quite impossible while trading. Though you are equipped with excellent trading skills, you still fail, you have to accept losses some other day because the market is supreme. The market is the only king. To make money, you just need to accept small losses. But a number of profits should be greater than the number of losses.

No matter how much you read, watch, you might face some losses at a certain amount of time. The only solution is to accept your losses and cut them down quickly before the loss gets big. Expert traders do not avoid losses, but they manage them smartly. You should learn to earn more than your losses. This is the only way to stay profitable consistently.

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Trading Mistake #2: Over trading

Many people keep on trading until the market closes down. As per psychology, we think that we can earn money if our first trade goes correct and if the first trade goes into the loss then the next trades will recover the loss. But at the end of the day, people will end up losing too much money. Within a few days, people vanish all money from the trading account and also waste all the time which was spent on trading.

We trade beyond our limits this is also one of the trading mistakes.

Trading Mistake | Over trading - Arable Life
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Solution

Time is money, so manage your time wisely and decide at what time you will be active in the market. Do not keep charts always in front of your screen. You should keep a small amount of money for trading and keep all the major money at safer options long-term investment in Shares, Mutual Funds, REIT, etc. This article will help you to manage your money wisely. 

This trick will help you to stay relaxed while trading, as a major part of the money, is in a safe place.

Trading Mistake #3: FOMO Attitude

You might be reading a FOMO word for the first time. FOMO stands for “Fear of Missing out”. Most beginner traders undergo this situation while trading. Normally stock moves up and down, we buy the stock by thinking that the stock will take large upward movement and start waiting.

Beginners also use technical knowledge for the signal. But stock does not move as expected.

Later we get to know that the technical indicator gives the wrong signal. This happens due to fear of missing out (FOMO) on the current situation.

When we think of buying a stock, we just wait. But stock starts moving upside. Suddenly we think of buying at any cost otherwise we may miss the running profit. This merely happens due to fear of missing out on the opportunity market is giving. But this attitude is wrong because when we buy, the stock may move opposite to our direction, and we become nervous.

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Solution

The market typically shows such moments in the prices which might affect our emotions. And we end up making wrong trading decisions. So, it is better to ignore such moments. No matter how much profit it gives, do not trade until you believe it strongly with your knowledge.

You should gain complete knowledge about Techno-Fundamental analysis, which means complete knowledge about reading the financial reports as well as price charts. This is the only solution for us.

Trading Mistake #4: Unclear about R:R ratio

Many new traders/investors take risks without calculations. Actually, they are not wrong because there is none to teach them how to calculate the risk. Neither friends nor TV, videos, newspaper. So, my dear reader, here you are going to understand the basics of risk calculation for a personal level of trading or investment.

New investors/traders invest their money to earn 100 Rupees, once the market shows a profit of Rs. 100 they sell it quickly. But if it goes wrong and shows a loss of Rs. 100 then they do not sell, instead wait for the recovery, if recovered they expect to get some profit. And when the market increases their loss, the trader/investor loses all his hopes and then exits by having a loss of Rs. 400.

This example may be related to you as well. It also related to me while I was at the beginning stage. One should follow the solution below to avoid such circumstances and get overall into the profit.

Trading without knowing important things is our mistake. So, this is called a trading mistake.

Trading Mistake Risk Reward, Risk Management - Arable Life
Risk management by Nick Youngson CC BY-SA 3.0Pix4free

Solution

Technically, the risk is a very subjective term, such as types of risks, management of risk, systematic and unsystematic risk, etc. and it will take more than a week to understand completely. So, let us understand in simple words which can be implemented for the personal.

In the above example, the trader is strict with his profits aka Rewards, but not disciplined with the risk he needs to maintain.

If you are new, ideally you should follow the R:R ratio to be 1:1 (R:R=Risk-Reward). But I would recommend you to maintain 1:1.5. That means if you wish to earn Rs. 150 then you are ready to lose Rs. 100.

There is no single deal in which you will be rich overnight. You have to trade regularly to generate good assets. You will face profits as well as losses every time no matter how expert you are.

Practically speaking, risk varies from time to time. Technically, it is called VaR (Value at Risk). But as a beginner, you might not be able to calculate VaR. So, simply manage your R:R and stay relaxed. Sometimes you might face losses, but it is okay to at least learn the market and survive without losing much.

Do not worry about profits. Because according to 1:1.5 R:R, you already improved the chances of earning money. See how

If you place 100 trades in a month. Each time, you are ready to take a loss of Rs. 100. And expect Rs. 150.

Suppose your winning rate is 40 percent, which means you lose 60 trades out of 100. Then you are not losing a single rupee. Let us see. How?

Profit = 40 * 150 = 6000

Less : Loss = 60 * 100 = 6000

Gross Profit = 0

But if you spend a couple of weeks learning different analysis methods such as technical and fundamental studies and apply while trading, then you can improve your winning rate easily up to 60 % (percent) within a couple of weeks. Then your profit calculations will be like,

Profit = 60 * 150 = 9000

Less : Loss = 40 * 100 = 4000

Gross Profit = Profit – Loss = 5000

So, do not flow with the market charts, always be strict with your R:R Ratio.

Trading Mistake #5: Depict news incorrectly

NEWS is a vital part of a trader/investor. Because news provides us the base to understand the direction of the market. If you are the one who has updated news, then it becomes very easy to trade. But all news is not relevant for the trading. Some news is crucial, while all others are just a title in a paper. But reporters may get paid to highlight any irrelevant news and certain news gets hyped without any reason. Many traders go in the flow of the hyped news and make losses.

So this is considered to be a trading mistake.

unrecognizable ethnic businesswoman reading the newspaper in a train, Trading mistake - Arable Life
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Solution

No matter what, our money is our responsibility. If we are making losses due to misguided news articles, then we are the ones who have depicted and understood any news wrongly. We need to practice with a small amount until we are not confirmed with the impact of the news. But this will take a very high amount of time to understand, some might take more than 5 years. It is advisable that within this period you should use only 1 percent of the capital for trading which is purely based on the news.

Trading Mistake #6: Depend upon other’s views

Most of us trade using the guidance of our friends, business TV/YouTube Channels, and financial mentors. Many of them are guides and coaches. But the issue comes up while traders love to earn rather than learn.

Coaches or mentors may love to help new traders, but new traders want to earn money as fast as they can by the use of others’ brains. For that, they also become ready to pay the fees or commission and call themselves a trader.

But this is purely an example of spoon-feeding. Mentors use their knowledge and tell the name of the companies, and the trader invests his hard-earned money without analysing the company.

There are many factors while making a trading decision. Such as,

Company’s past performance, capital structure, level of leverage company allocated, trader or investor’s personal financial level, structure, risk appetite, previous investments, loans, payment, and bills dues, and much more. But new traders simply trust the analyst and trade blindly, he stops using his brain once he trusts the mentor/analyst.

This is merely our trading mistake which others take advantage of.

Solution

It is advisable to not fall into earning if you are a beginner, having less than 2-3 years of experience. Every trader is a beginner because every day he learns something, but 2-3 years of experience make you understand common facts about trading.

Keep learning through TV, YouTube Channels, News articles, books, company’s financial reports, etc. Then practice techniques as well as fundamental analysis. Discuss with friends who are from a finance background or have good knowledge and experience. Try to focus on the various facts.

If any time your group starts discussing their analysis on any company or the market, then find what are the parameters or indicators they have used for coming up to the conclusion of final buying or selling a stock.

This will give you a clearer picture of their level of analysis and sharpen up your understanding of the market.

Whether you trade or not, but at least give a look at the company they told. Analyse by your own cross-check all the parameters your friend told. Monitor the performance of the company or the market. But do not show that you stopped trusting him if his analysis goes wrong. Otherwise, your personal relations will be affected.

Money is for us, we are not made for money. So respect everyone’s opinion and analysis. But, never trade blindly as others say, it will be very risky.

Trading Mistake #7: Avoid reading

Besides textual form today, knowledge is available in every form such as Audio through Radio or Podcasts or Audio-visual through YouTube videos or TV Channels. Audio and Video forms proved themselves as quick learning resources as our two or more senses are being used.

Most of us prefer listening to audio or watching videos because those are entertaining, while reading makes us bored easily. But sadly, audio or video content creators overly engaged in paid promotions and advertisement, hence people could not get true and fair information (or knowledge).

All other issues relating to Audio-Visual content.

  1. Addicted towards Audio-Visual content
  2. Misguided due to paid promotions (Discussed already)
  3. Repeated ads tend to lose our control on finance and emotions
  4. Decreased attention span
  5. Suffering from eye’s health issues by watching continuously towards the screen
  6. No proper structure on content
  7. Repeats same content on different videos

Hence, Audio or Video content does not mean to be the perfect or great resources. So it is also considered to be a Trading Mistake.

white ceramic teacup with saucer near two books above gray floral textile, Trading Mistake - Arable Life
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Solution

If you want to be conceptually clear with true and fair information, you have to follow the below tips.

  1. Continue watching videos from great creators (This link will help you about the best YouTube channels)
  2. Business books/Novel reading (Click here for the all-time best business books)
  3. Read blog articles related to Business and Finance
  4. Economic page from Newspapers
  5. Talk with other traders through Telegram groups (List of good Telegram groups, channels will be updated soon on the ArableLife.com)

If you follow this solution, you will create a great output.

Conclusion

The Stock Market is neither a gold mine nor gambling. Making money through the stock market needs courage, patience, knowledge, and skill of management and decision-making at the right time. For that, we can practice avoiding trading mistakes.

You should manage Greed and Fear in the market. People with the wrong attitude end up losing everything they have.

There is no doubt that the stock market is risky but still, there are some people who are constantly earning from the stock market and living a happy life.

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