When you first start on this journey, you often encounter experienced traders who tell you about their feats and give you the infallible recipe for success. But have you ever wondered what you shouldn’t do if you want to keep your accounts safe?
There are good and bad practices in trading. And to ensure that your experience as a trader doesn’t leave you bankrupt, it’s necessary to avoid what I call the cardinal sins of a trader. There are five instead of seven, but if you commit them, you will have no future as a trader.
The 5 Deadly Sins of the Trader
1- Laziness
Don’t stop working. At least when you start your journey as a trader, you’ll need to keep your traditional job.
Trading will not replace your fixed income or your profession because it’s what you have been trained for and have experience in.
Many people interested in trading ask me for advice. They often believe that trading will provide them with passive income, but that’s not the case.
Trading can generate attractive returns with the surplus liquidity obtained through your work and effort.
It’s a complementary activity to your job, but not a substitute. You cannot dedicate more time than necessary to trading because it can affect your fixed income, which you’ll need to continue trading and, in the long run, to maintain financial peace of mind.
If you have lost your job or have just graduated and lack experience, trading is not an option to pay the bills because it’s a risky strategy that will take time to master, and also because even when you do master it, you may go through periods where your analysis is not accurate and you lose money.
Ninety-nine percent of people who attempt trading fail to make it past the first year of activity. And that happens because risk management is critical.
Trading and the stock market are not easy money, nor can you make a living from them in the short or medium term. Most traders I know have different sources of income.
2- Anxiety
The second sin for a trader is to start trading prematurely, without having enough capital to trade and without risking your finances. The recommendation is not to invest more than 20% of your available capital in trading.
It’s not a race against time. You won’t earn more by investing faster but by doing it smartly. Many times, those who invest fast do so without thinking. And they usually lose.
Some people invest 50% or 100% of their capital in trading and even go into debt to increase the money they allocate to speculative operations; this mistake will condemn them to failure.
If you don’t have enough capital, you should continue working, saving, and accumulating money to ensure that 20% of your available capital becomes relevant for your trading operations.
3- Starting to trade without studying
The third bad practice is not having studied enough or not having complete information about what you are trading on the exchange.
It is serious that, in the rush to start, you force trades without completing the training process or practicing enough. It’s essential to understand everything that can affect your trading plan.
Financial health and the correct development of your investments depend on what you do with your money rather than what others do with your money. That’s why you need to prepare as well as possible without thinking about the short term.
4- Pride
Being arrogant or haughty will only prevent you from seeing the mistakes in your strategy and correcting them. Then, you will lose money.
Successful traders keep our operations quiet; we do not talk much about profits or losses. We communicate correctly with third parties about what we do.
Being arrogant does not generate a correct investment culture and gives wrong information about trading knowledge. It drives people away from investments because they see it as too complicated and do not identify with the trader who talks too much.
Be prudent with your successes and failures, and always learn and teach. Listen to others.
5- Not having a plan
The fifth malpractice is not having or not following a proper trading plan, which includes mismanaging risk and setting the wrong goals and timelines.
This is a highly volatile, high-risk business. Falling in love with a trend, a position, or an asset is a mistake.
Violating parameters and metrics against your strategy is the best way to lose everything you invested. Risk management is the most important thing when investing.
You should always have a tight stop-loss and a profit expectation 2 or 3 times higher than the risk of possible losses; this also suggests that goals must be achievable.
Investing more than you should, not having stop-loss, thinking about short-term profits, and setting too-long objectives will make your trading plan unfeasible.
If, for example, you’re trading oil and it moves 120 basis points a day, you know that in one day, you won’t achieve 400 basis points unless it’s a day of dangerous volatility not recommended for successful traders.
Avoid committing these five bad practices, and you will see how you will become a successful trader step by step.
In the meantime, follow us, and you’ll learn too.
