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SEVEN DUMB MISTAKES TRADERS MAKE
7 dumb mistakes of beginner traders
We have gathered the answers of top-performing traders to a straightforward question:
"What is one mistake you made early in your career that you have learned from and will never repeat?"
The result: 7 painful mistakes everyone (from beginning trader to successful trader) should avoid in their trading journey.
Let's dive in!
#1 . Not cutting losses quickly
Not closing losing trades quickly is by far the most popular and grave mistake.
The majority of beginner traders stubbornly hold onto their losses when the losses are still small and reasonable.
They could get out cheaply, but instead, they keep waiting and hoping…
…until their loss gets too big and wipes out their whole account.
Solution: Decide upon and set a limit to your losses even before you enter a trade. And accept that losses are an inevitable part of the process. Don't let your trading be influenced by emotions.
#2 . Averaging losers
"Losers average losers" - a poster in the office of Paul Tudor Jones - one of the most famous traders. His net worth is estimated at $7.5 billion.
A proven way to ensure miserable results is to add to a losing position which keeps falling.
A declining asset seems a real bargain because it's cheaper than a few months earlier.
Too often, traders want to buy more of the asset as the trade goes against them.
This is a critical mistake!
The phrase "losers average losers" refers to traders who continue to hold onto their losing positions instead of cutting their losses and moving on.
Instead of accepting their losses, these traders will often try to "average down" by adding more money to their losing positions in the hope that the market will turn in their favor and the win will be bigger.
If you buy a stock at $100 and then buy more at $90 and average out your cost at $95, you are pouring gasoline into a fire. The same is true with a forex pair. This amateur strategy can produce severe losses and bring you down with just a few big losing trades.
Here's a real-life example of a newbie trader who lost $39k of his life savings in just two hours as he tried to add to his losing position in the hope that it would turn into a winner:
Illustration : “Bought today at 10:30 sold to close at 12:30. Added 100 more contracts to try to avg down. F*k me. This was not house money this my savings. Excuse me I am going to go throw up again.”
Bottom line: Cut your losses quickly when a trade goes against you. The approach of averaging down can be used for long-term investing to smooth out the impact of market fluctuations, but it should be avoided in day trading.
#3 . Not taking spreads into account
Example of spreads: what new traders often pay and what experienced traders look for.
Spread commissions are the fees that traders pay to their brokers for each trade they make. Spread is the difference between the ask and bid price, and it's usually represented in pips. That's how brokers make money.
These fees are typically calculated as a percentage of the trade size and can significantly impact a trade's profitability.
Beginner traders often neglect the importance of spreads because they focus solely on the price of the asset they are trading and ignore the cost of making the trade.
However, spreads can significantly eat into profits, especially for traders who make frequent, small trades.
What do you think - is it expensive to pay 0.0143% (1.5 pips) of your trade size in spread fees when trading EUR/USD?
It sounds too small to even bother, right?
But, if you put just $1k into your account and trade actively making 5+ trades per day, that 1.5 pip spread can add up to $3,750 of useless expenses over a year. And it can create $1,750/year of unnecessary costs if you don't look for a broker with lower spreads.
Here's a spread comparison for some of the most popular brokers*:
As you can see, IG trading has some of the lowest spreads. And currently, IG is running a limited special offer (for US clients only) where new users can get a $250 - $5,000 deposit bonus. More info about the bonuses here .
* Spread example from January 2023. Spreads are subject to change depending on how active the markets are. The spread cost calculation is based on the following input parameters: Trading activity: 5 deals per day. Average deal leverage:1:20. Account equity: $1,000. Past return on equity: 20%.
Main takeaway: Time and leverage significantly compound spread expenses, so choose a broker with low spreads and commissions.
#4 . Swinging for the fences
Many experienced traders who share their trade ideas with their followers try to warn their community about the problem of putting too much of their account's value in separate trades, but most people don't listen or just ignore it.
Here's how many newbies fall into a painful trap.
They read about experienced traders discussing or bragging about making $5k - $30k on a single trade.
And they think they can do the same.
As a result, they attempt to "go big or go home" by putting too much money into each trade in pursuit of quick and significant profits.
What the beginners don’t know: the smart veteran traders have big accounts ($25k - $300k) and they never put more than 1-4% of their account on any given trade. Thus, they can afford several losing trades, as they usually make up for 2-3 losing trades with one profitable trade. However, newbies often put 50% - 100% of their accounts on the line and blow it all with a couple of unlucky trades.
#5 . Indicator overload
As traders gain experience, they often discover that they require fewer indicators to make informed trading decisions.
Conversely, novice traders may believe that employing a greater number of indicators provides a clearer market perspective, and they take pride in having highly complex charts.
However, overcomplicating analysis can result in analysis paralysis and obscure the overall picture.
The ideal approach: Embrace simplicity and eliminate distractions. Concentrate on the trend and crucial price levels, and avoid using more than a couple of indicators simultaneously. Less is often more.
#6 . Using technical analysis without considering the context
The AUD/JPY rate crashes as the Bank of Japan announces that it plans to raise the interest rates of government bonds.
Imagine you had found a perfect technical pattern setup that indicated the AUD/JPY would go up!
And then all your technical analysis goes to the trash with one announcement from the central bank.
Here’s the problem : technical analysis is based on past data and cannot predict future market movements with 100% certainty.
As a result, technical analysis should not be viewed in a vacuum. It's essential to consider the broader market context, including economic and political conditions, when interpreting technical analysis.
The best traders are usually well-versed both in technical and fundamental analysis.
Usually, even hardcore technical analysis fans keep up with the major fundamental news.
Fundamental analysis, which involves evaluating a country's or a company's financial health and industry conditions, can provide valuable context and insight that is not reflected in the price chart.
Ignoring fundamental analysis can lead to a narrow and incomplete view of the market.
Key takeaway: even if you plan to focus on technical analysis, make sure to understand the main concepts of fundamental analysis. The good news is that this app will teach you the basics of both analysis types.
#7 . Trading against the primary trend
Illustration : You think you’re in a downtrend, but you’re actually in a temporary pause (A.K.A consolidation) of a bullish market.
There is a popular saying: " The trend is your friend! "
The trend, or the overall direction in which the market is moving, can be a powerful force and traders need to be aware of it.
Trading against the trend, or trying to pick tops and bottoms, can be risky as the trader is going against the dominant market forces.
How to avoid this? Always check a higher time frame to determine the major trend. For example, if you see a pattern that you want to trade on the hourly or daily time frame - check the weekly and monthly time frames to see the overall trend.
7 dumb mistakes of beginner traders
We have gathered the answers of top-performing traders to a straightforward question:
"What is one mistake you made early in your career that you have learned from and will never repeat?"
The result: 7 painful mistakes everyone (from beginning trader to successful trader) should avoid in their trading journey.
Let's dive in!
#1 . Not cutting losses quickly
Not closing losing trades quickly is by far the most popular and grave mistake.
The majority of beginner traders stubbornly hold onto their losses when the losses are still small and reasonable.
They could get out cheaply, but instead, they keep waiting and hoping…
…until their loss gets too big and wipes out their whole account.
Solution: Decide upon and set a limit to your losses even before you enter a trade. And accept that losses are an inevitable part of the process. Don't let your trading be influenced by emotions.
#2 . Averaging losers
"Losers average losers" - a poster in the office of Paul Tudor Jones - one of the most famous traders. His net worth is estimated at $7.5 billion.
A proven way to ensure miserable results is to add to a losing position which keeps falling.
A declining asset seems a real bargain because it's cheaper than a few months earlier.
Too often, traders want to buy more of the asset as the trade goes against them.
This is a critical mistake!
The phrase "losers average losers" refers to traders who continue to hold onto their losing positions instead of cutting their losses and moving on.
Instead of accepting their losses, these traders will often try to "average down" by adding more money to their losing positions in the hope that the market will turn in their favor and the win will be bigger.
If you buy a stock at $100 and then buy more at $90 and average out your cost at $95, you are pouring gasoline into a fire. The same is true with a forex pair. This amateur strategy can produce severe losses and bring you down with just a few big losing trades.
Here's a real-life example of a newbie trader who lost $39k of his life savings in just two hours as he tried to add to his losing position in the hope that it would turn into a winner:
Illustration : “Bought today at 10:30 sold to close at 12:30. Added 100 more contracts to try to avg down. F*k me. This was not house money this my savings. Excuse me I am going to go throw up again.”
Bottom line: Cut your losses quickly when a trade goes against you. The approach of averaging down can be used for long-term investing to smooth out the impact of market fluctuations, but it should be avoided in day trading.
#3 . Not taking spreads into account
Example of spreads: what new traders often pay and what experienced traders look for.
Spread commissions are the fees that traders pay to their brokers for each trade they make. Spread is the difference between the ask and bid price, and it's usually represented in pips. That's how brokers make money.
These fees are typically calculated as a percentage of the trade size and can significantly impact a trade's profitability.
Beginner traders often neglect the importance of spreads because they focus solely on the price of the asset they are trading and ignore the cost of making the trade.
However, spreads can significantly eat into profits, especially for traders who make frequent, small trades.
What do you think - is it expensive to pay 0.0143% (1.5 pips) of your trade size in spread fees when trading EUR/USD?
It sounds too small to even bother, right?
But, if you put just $1k into your account and trade actively making 5+ trades per day, that 1.5 pip spread can add up to $3,750 of useless expenses over a year. And it can create $1,750/year of unnecessary costs if you don't look for a broker with lower spreads.
Here's a spread comparison for some of the most popular brokers*:
As you can see, IG trading has some of the lowest spreads. And currently, IG is running a limited special offer (for US clients only) where new users can get a $250 - $5,000 deposit bonus. More info about the bonuses here .
* Spread example from January 2023. Spreads are subject to change depending on how active the markets are. The spread cost calculation is based on the following input parameters: Trading activity: 5 deals per day. Average deal leverage:1:20. Account equity: $1,000. Past return on equity: 20%.
Main takeaway: Time and leverage significantly compound spread expenses, so choose a broker with low spreads and commissions.
#4 . Swinging for the fences
Many experienced traders who share their trade ideas with their followers try to warn their community about the problem of putting too much of their account's value in separate trades, but most people don't listen or just ignore it.
Here's how many newbies fall into a painful trap.
They read about experienced traders discussing or bragging about making $5k - $30k on a single trade.
And they think they can do the same.
As a result, they attempt to "go big or go home" by putting too much money into each trade in pursuit of quick and significant profits.
What the beginners don’t know: the smart veteran traders have big accounts ($25k - $300k) and they never put more than 1-4% of their account on any given trade. Thus, they can afford several losing trades, as they usually make up for 2-3 losing trades with one profitable trade. However, newbies often put 50% - 100% of their accounts on the line and blow it all with a couple of unlucky trades.
#5 . Indicator overload
As traders gain experience, they often discover that they require fewer indicators to make informed trading decisions.
Conversely, novice traders may believe that employing a greater number of indicators provides a clearer market perspective, and they take pride in having highly complex charts.
However, overcomplicating analysis can result in analysis paralysis and obscure the overall picture.
The ideal approach: Embrace simplicity and eliminate distractions. Concentrate on the trend and crucial price levels, and avoid using more than a couple of indicators simultaneously. Less is often more.
#6 . Using technical analysis without considering the context
The AUD/JPY rate crashes as the Bank of Japan announces that it plans to raise the interest rates of government bonds.
Imagine you had found a perfect technical pattern setup that indicated the AUD/JPY would go up!
And then all your technical analysis goes to the trash with one announcement from the central bank.
Here’s the problem : technical analysis is based on past data and cannot predict future market movements with 100% certainty.
As a result, technical analysis should not be viewed in a vacuum. It's essential to consider the broader market context, including economic and political conditions, when interpreting technical analysis.
The best traders are usually well-versed both in technical and fundamental analysis.
Usually, even hardcore technical analysis fans keep up with the major fundamental news.
Fundamental analysis, which involves evaluating a country's or a company's financial health and industry conditions, can provide valuable context and insight that is not reflected in the price chart.
Ignoring fundamental analysis can lead to a narrow and incomplete view of the market.
Key takeaway: even if you plan to focus on technical analysis, make sure to understand the main concepts of fundamental analysis. The good news is that this app will teach you the basics of both analysis types.
#7 . Trading against the primary trend
Illustration : You think you’re in a downtrend, but you’re actually in a temporary pause (A.K.A consolidation) of a bullish market.
There is a popular saying: " The trend is your friend! "
The trend, or the overall direction in which the market is moving, can be a powerful force and traders need to be aware of it.
Trading against the trend, or trying to pick tops and bottoms, can be risky as the trader is going against the dominant market forces.
How to avoid this? Always check a higher time frame to determine the major trend. For example, if you see a pattern that you want to trade on the hourly or daily time frame - check the weekly and monthly time frames to see the overall trend.
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