Are you new in the world of trading and investment? Are you a trader or an investor who has been in the market for a while and yet is still on the red in his portfolio? If yes, then it is a must that you reflect on the mistakes the newbies make.
At the beginning of my trading journey, I lost $10,000 despite spending $20,000 for attending many programs, subscribing to trading tool websites and buying trading and investment books. I kept asking myself: how can I improve my trading and investment? The first step that I took was to review what mistakes I and other new traders and investors made. Here they are:
1. Fail to overcome fear and greed.
The biggest enemies of every trader and investor are fear and greed. Fear prevents people from taking action when opportunity comes. Greed stops them to get out after making small profits or when the market goes against them. Remember that FEAR is False Expectations Appear Real, and that GREED is Grasping Richness in Extreme Excessive Desperation. Newbies should learn to be emotionless while they trade and invest.
2. Follow a trading or investment program or a coach blindly.
Being newbies, they are easily persuaded to follow one theory. If they attend a program with a charismatic person, they might believe he is smarter than them and thus worth to be trusted.
3. Have no clear plan.
When newbies enter the market, most of them have no clear plan regarding how much they aim to earn and when they should get out. By failing to calculate the risk and reward before entering the market, they let their fear and greed lead them to the disaster of losing their capital.
4. Know it all.
Once newbies learn the techniques and approaches, apply them and see the initial winning, they tend to be over-confident. They tend to stick with that winning formula and fail to improve their skills, and never question that this initial winning is only a coincidence instead of a result of a valid formula. Then after losing money, many still insist on their proven approach instead of reviewing and improving it.
5. Lack support.
Many newbie traders or investors have no support from their close friends and/or family members. As a result, they feel even worse when they lose money because of the criticism they receive. Emotionally battered traders and investors make even worse mistakes.
6. Fail to do the homework before trading.
Newbies who have initial success tend to become less diligent in spending time to read, listen to the news and do the fundamental and technical analysis. Market condition changes daily. Spending a few hours to analyze what moves the market is a must before trading.
7. Follow market analysts (experts) blindly.
While reading or listening to the news with various analysts giving their opinions, newbies need to do further analysis instead of blindly following those opinions.
8. Fail to preserve capital.
Warren Buffet has two rules. Rule 1: Do not lose money. Rule 2: See Rule 1. If those rules are held by the world number 1 investor, should newbies consider to put those rules as theirs? Very often, when newbies buy options they let them expire or when they buy shares they don’t buy put for their protection.
9. Fail to sharpen the saw.
No trading or investment program has all the answers people need for their trading and investment. They still need to sharpen their skills by reading books, joining forums and attending courses.
10. Have no trading and investment record.
Recording every trading and investment with the details of reasons of buying and selling them allows newbies to learn from their own experience. Recording their successes and failures is one of important disciplines to succeed in the world of trading and investment.
Life is too short to make all of our mistakes. The cheapest way is to learn from others so that we do not need to experience those mistakes ourselves.
Perhaps you can add to the above lists. However, do not dwell in your mistakes but move on to the next step: finding solutions to every mistake you make. Once you find the solutions, put them into practice. It is not how much you know that will make the difference in your trading and investment but how much you put into practice. Remember that all the great traders and investors were once newbies.
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