Made Any of These Newbie Trader Mistakes?
When I first began to trade through spread betting I religiously stuck to the FTSE, Dow Jones and Gold. Looking back now it wasn't a particularly great idea as a wannabe Trend Trader.
Simply because the markets I was "emotionally attached" to were not trending.
My biggest mistake was limiting myself to these three markets. After all, if these markets weren't trending, I shouldn't have been trading and it was a big waste of time (and money) to try and profit from these ranging markets.
Of course, hindsight is a wonderful thing but even back then, I should've been able to see the signs.
My major mistakes as a newbie trader were as follows:
(1) Looking too closely at a market to try and find a signal.
Rather than actually wait for an opening signal, I would want to open a trade so much that I justified buying or selling from the slightest sign, even if it was just a small intraday move.
(2) Calling market tops and bottoms.
I would do this even though I had read several books by successful traders which warned against doing it. It's only now that I have learnt that a market is never too high to go higher and never too low to go lower (exceptions, such as a price of zero, noted).
(3) Completely ignoring any type of money management.
I would decide that I wanted to trade Gold at £1 a point with a 100 point stop. The problem with that is that Gold was, at this time, moving more than $10 per day and I was trying to trade medium to long term with a 100 point stop. In effect, I was just handing Finspreads £100 every few days.
(4) Day trading.
It's very, very hard to make money from daily spread betting. First of all, as soon as you open a trade you are losing because of the spread. Second of all, you have to be right almost immediately as you have a maximum time frame of about 8 hours for a trade to go your way. If you open a trade over a longer period of time, you have up to three months for the market to come back your way.
(5) Trading without stops.
At times, I was so sure that I was correct in a lot of my trades I didn't even think to enter stop losses. Instead I would enter limit orders to take profit once I had gained 30 points or so. The problem was, whenever I placed a trade, the market would move the other way. I wanted a quick profit but by not placing a stop loss, I ended up with a painful loss.
(6) Watching the screen religiously.
I was so sure I would make money from every trade I would place a day trade then watch it constantly. Most of the time it would go against me and I would hold back from closing the trade, promising myself that when I broke even, I would get out. When a trade did go my way, I closed it quickly for a small profit.
(7) Averaging down.
I distinctly remember placing a very wild trade on Gold. This market had made a new high the previous day and then quickly moved back down. I was so sure that it would make the new high again I risked 50% of my bank to back the market to beat that high. When the market moved against me, I increased my position, basically wanting to "win big". Of course, I lost most of my capital.
(8) Wanting to "get rich quick".
I put most of my mistakes down to the fact that I thought I could beat the markets straight away. My wild bets were proof of this. At the end of the day, due to this way of thinking, I was wiped out within about 3 months of starting. The ironic thing is, when I started trading, I also started paying into a fund. I invested £50 a month into it and, due to pound cost averaging, ended up well ahead over the 12 months I paid into it.
A little food for thought; over the long run I made more money by adding little by little to a fund.