New to trading? look out for these classic mistakes.

In the beginning many new traders believe that there is nothing to trading and that making money is easy. These misconceptions are derived from a few things with social media being the biggest culprit.

Let’s look at a couple of basic mistakes you should avoid when starting your trading journey.

Mistake #1: Not a level playing field

The market is a volatile place and not being educated on the mechanics of the market will be stumbling blocks for new market participants, usually at the expense of their initial trading capital.

Guidance: educate yourself, a big part of the process is education and it never stops. Know the mechanics of the market, the instrument you are trading, and the risks involved. By educating yourself you will give yourself an edge over the average newcomer.

Mistake #2: Overconfident

Remember you are competing against the best the market has to offer, they will be smarter than you, have more capital than you, doing it for longer than you, so being overconfident that you know what is going to happen next, will be your downfall.

Guidance: Being humbled by the market is something every trader has and will experience at some stage as soon as they get overconfident. See it as a good thing and part of your process. Never get overconfident and allow your emotions to take control, trading should be a boring thing. 

Mistake #3: Not recognizing mistakes

Fitting in with being overconfident a new entrant to the market will typically make the same mistakes repeatedly and expect a different result. There is usually no clear plan or structure in place to adapt to changing market conditions.

Guidance: you might be right in your initial forecast, but the market is not static and being prepared will give you an edge and a good place to start is with a trading plan.

Mistake #4: No trading plan

When starting out, new traders will just enter and exit the market with no reason other than their own bias. Pretty soon they come face to face with emotions they never knew existed and that might affect further trade decisions negatively.

Guidance: Constructing a plan of action or trading plan is pretty much an investment mandate dictating your every move in the market. As the market is forever changing your trading plan should be as well. Your trading plan can include a diary, this is where you will pick up on your mistakes and enable you to rectify them.

Mistake #5: Emotions

Emotions play a big part in trading and in the beginning your emotions will rule your decision making in a positive or negative way. I think Jesse Livermore said it best: "The human side of every person is the greatest enemy of the average investor or speculator."