Ten common trading mistakes — and how to avoid them

Ask a trading coach about the reasons people struggle with trading, and psychology and mindset will often come up. Under pressure, protective reactions can influence your decisions. That might be an instinct to escape, causing you to close a trade against your plan, or an urge to defend yourself or counterattack that makes you want to fight the market.

When you speculate, it is important to work on how you deal with these impulses. The aim is to notice them and examine your response, rather than trying to suppress your feelings entirely. That makes a sound trading plan and a well-developed strategy all the more important, so you can make your decisions as rationally as possible.

Here we have to take a critical look at our industry as a whole. Many people associate the stock market, and speculative trading in particular, with a casino where a little luck can quickly bring them a fortune. That idea is fuelled by adverts from trading coaches and schools showing attractive people driving expensive cars and living a luxury lifestyle. Some promise extraordinary returns that the system being taught cannot come close to delivering.

That is unfortunate, because trading is a demanding professional activity with substantial financial risks. How much money you can make or lose also depends on the capital available to you and the risk you take. A serious, professional trader should manage their account with sound risk and money management. They should avoid disproportionate risks or putting their entire account at stake in pursuit of quick money. Even a disciplined approach does not guarantee steady account growth.

As you can see, this reason follows directly from the previous one. In fact, as we thought through the subject, we found that many of the reasons overlap and connect. One cause can lead to the next, leaving you with a range of factors holding you back.

You do not learn trading overnight. It is not rocket science, but it still has to be learned. Experience plays a particularly important role. Learning a system, even understanding it completely, does not mean you can immediately apply it profitably. First, you need to become familiar with how it works, the technical procedures and, of course, the markets and their different characteristics.

That means setting aside some time every day to practise, especially at the beginning. Depending on the approach and trading discipline you want to learn, you may need considerably more time. If you are interested in day trading (programme information in German), in particular, we are talking about several hours a day. That can be exhausting when you are learning alongside your regular job. Trading will NOT make you rich overnight. That much I can tell you for certain. You need perseverance, which brings us straight to point four: impatience.

Even if you have managed to make the necessary time for trading every day, that does not mean you can immediately put everything you have learned and practised into action. You need patience and staying power. We all learn at different speeds and start with different levels of knowledge. How long you need to master a discipline such as day trading (programme information in German) or swing trading (programme information in German) also depends on your practice time and the quality of your training. You may understand a trading system more quickly, but that does not establish a fixed timetable for applying it competently or becoming profitable.

Impatience will only encourage mistakes. Worse still is giving up on an approach too quickly. We often see beginners abandon a system whose rules they have not yet examined thoroughly, simply because they cannot put it into practice quickly enough.

Almost more often, though, we encounter the opposite, which brings us to reason five: you are trying to trade a system that simply does not work.

Here, too, it is worth looking at the internet, particularly YouTube. It is striking how many brightly coloured thumbnails now compete for your attention on the home page. They advertise strategies you can apply quickly, along the lines of: SMA 1 crosses SMA 2 and the last three candles were all purple-peach-green. An entry pattern like that does not tell you whether a complete trading system works. That also requires exits, risk rules and a transparent assessment after costs.

An approach explained publicly can be a useful starting point for learning. Whether it is viable in your own trading only becomes clear through a transparent assessment that includes costs, losing periods and clear rules. Look for evidence you can check, rather than adopting a strategy solely because of a video or a promise. You can take the initiative and develop your own strategies, which we strongly encourage, or find a capable teacher to help you learn trading. Your own initiative and a good coach can complement each other; they cannot guarantee lasting success.

You have chosen the wrong teacher. We need to be careful here, of course: we do not want to offend colleagues. Still, it is no secret that our industry includes fraudsters and people with questionable practices. Here is a brief checklist to help you assess a sound trading school:

• Use your judgement of people: how does the trader conduct themselves?
• Do they speak factually and informatively, or boast about their possessions and talk mainly about their successes rather than sharing their knowledge?
• How old is the coach? Do you feel they bring some life experience?
• More importantly, do you think they can teach well? A trader may be very successful at their job without necessarily being a good teacher.
• Do they make an effort to disclose their performance in some form?
• Can you reach them with questions, and do they respond promptly and competently?

We probably do not need to tell you that your trading coach plays a significant role in how quickly you reach your goal, or whether you reach it at all.

This point should be well known by now, but we have to keep emphasising its importance. You may be psychologically resilient and have an excellent trading system. You may even avoid all the other mistakes mentioned in this article. Yet if you cannot manage your money and trading risk properly, you will end up losing money or even wiping out your account.

Entire books have been written about this subject. Fundamentally, it concerns when you close a trade, whether it is in profit or loss, and how much capital you can and want to risk on each trade relative to your total capital. That varies considerably between systems and individual circumstances. You MUST, however, consistently follow a defined set of rules, or you will struggle in trading over the long term.

You can also make things harder for yourself by trading the wrong instruments. If you choose your broker because of its impressive advertising around Bundesliga football pitches, for example, that tells you nothing about its trading terms. Of course, we are not condemning broker advertising in general; everyone needs some way to attract attention. What matters is the actual terms for your trading.

Before choosing an instrument, check where and with whom you trade, how prices are formed, and the costs and risks involved. CFDsContracts for difference: speculation on price movements without owning the underlying asset, traded off exchange through a provider and made highly risky by leverage. are generally traded over the counter with a provider; retail spot forexForeign exchange: trading currencies such as EUR/USD. Retail spot forex is often traded over the counter; currency futures and options can be traded on an exchange. is also often traded over the counter. Currency futures and options, however, can trade on an exchange. Source: Investor.gov. “Zero commission” does not mean your trading is entirely free: depending on the product and provider, spreads, financing costs or other fees may apply.

Exchange-traded examples include shares, ETFs, bonds, futuresStandardised contracts traded on an exchange that oblige the parties to buy or sell an underlying asset at a specified price and date. and optionsExchange-traded contracts giving the right, but not the obligation, to buy or sell an underlying asset at a specified price.. You can lose money there, too. In particular, compare product structure, liquidity, leverage, costs and counterparty risk.

We are nearing the end and come to point nine: placing too much trust in supposed experts. If you think successful trading requires watching the news from morning to night and reading every possible expert forecast, I can reassure you that it does not. Experts can also get their forecasts wrong. A single correct prediction does not establish forecasting reliability; in hindsight, it is easy to find someone who predicted what happened.

In the morning, I listen to a business news podcast to catch up on the financial world, and in the evening I watch Tagesschau, the German television news programme. That is my personal news routine. Unless you specifically trade the news, you do not need to follow every story. Which events and announcements you need to monitor does, however, depend on your market, holding period and approach.

We would strongly advise against making investments solely on the basis of a supposed expert’s opinion, especially if you do not know that expert’s background or find it difficult to assess. At TradeNeon, our principle is that you should take charge of your own finances and understand your decisions.

Now we come to the final point, and in my view the most important one. If you believe you have consistently addressed all nine of the preceding points in your everyday trading but are still struggling, it is worth examining how the markets have changed. This is less obvious than many other mistakes and, in my view, often underestimated. Adapting to such changes makes trading demanding.

You may have heard of the Turtle Traders. Richard Dennis and William Eckhardt taught a group of participants a rules-based system for trading futures. It covered not just entries, but also exits, position sizing and stops. The Turtle Traders are therefore a historical example of learning a complete trading system. Their story cannot establish the returns of a system traded today. Source: Original Turtles.

Market structure, liquidity and competition change. As an approach becomes widely known and more market participants trade it, its conditions can change. Electronic trading has also changed markets. That does not establish a verifiable, universal end date for the Turtle system, however. Any rules-based approach requires checking whether its assumptions still hold in today’s market.

An entry such as “SMA 1 crosses SMA 2 from below and you go long” initially describes just one rule. You need to test whether a system built around it is viable in the relevant markets and conditions. Even an approach that worked for several years may later lose its edge. Markets are constantly changing; past results do not guarantee future performance.

Electronic and algorithmic trading change market conditions. You need to understand how markets work and recognise when they change. This brings us to an important point that we explore in detail in our day trading programme: in our view, there are two questions you should ask when trading, particularly when day trading. WHERE is a relevant price area, and WHAT actually happens there? In our approach, we check both. These are checks, not a guarantee of success.