Self-sabotage is the act of creating problems for yourself which creates problems in your life and interferes with your long-standing goals. A mistake is when you do not follow your own written rules.
The most common trading errors are self sabotaging mistakes made by a trader in the market when they do not follow their own trade plans and go against it. This leads to self-sabotage.
When you begin to trade, you need to create a working plan that will act as a guide in your trading journey. This plan will comprise of many rules which are required to be followed. If you don’t develop such rules, everything you do will be at random and you will begin to feel that the markets are going against you.
There are many trading blunders that one can make. Below are a few common trading errors or mistakes:
Chasing Returns: Jumping into trades based on recent news or the fear of missing out (FOMO) without doing proper research or considering the risk/reward ratio can lead to poor outcomes.
Entering trades on the basis of emotions or tips: Tips are generally given by friends, family or even by stock brokers to their clients and these tips never work in the favour of the client. Trades should always be taken after a proper technical analysis of the stock
Not using Risk Management Techniques: Not using proper Risk Management Techniques to plan trades is one of the biggest trading blunders. It is very important to set your stop loss as well as your risk reward ratio and limit your loss in a trade gone wrong.
Not calculating Risk Reward Ratio: A Risk to Reward ratio is the ratio of potential profits to potential losses in a given trade. Generally you should never have a risk reward ratio less than 1:1 as then the losses would be way more than the benefits. Most traders do not use this concept while trading.
Not Exiting a Trade gone wrong: Even after using Risk Management Techniques to set a stop loss, many traders do not exit the trade when they have hit their stop loss level. They hold onto trades when they are making a loss in the hope that it will come back in their favour.
Overtrading: When a trader risks too much amount of money on one particular trade. A trader cannot play blind in the markets. Proper money management techniques should be applied to each trade.
Not having an Exit Strategy: After entering a trade, the most important step is to have your exit strategy in place. Most traders end up exiting early due to fear of loss or get influenced by external factors and give up on their profits.
Not Adapting to Market Changes: Markets evolve, and strategies that worked in the past may not be effective under current conditions. Traders sabotage themselves by sticking rigidly to outdated methods.
Lack of Discipline: Deviating from a
trading strategy based on hunches or external advice without proper analysis can undermine a trader's results. Discipline is crucial for long-term success.
Failing to Learn from the Markets: Not keeping a trading journal or reflecting on past trades to identify what went wrong (or right) is a missed opportunity for improvement. Successful traders continuously learn from their experiences.
The
stock market is a confusing place where one does not know what they are doing. Trading without a clear plan is like sailing without a compass. A lack of defined entry, exit, and money management rules can lead to impulsive decisions and significant losses. Thus in all this uncertainty, it is very important to make a comprehensive trading plan. This is the one and only solution to overcome all the above mentioned common trading mistakes made even by experienced traders.
Trading is not just about strategies and analysis; it's also a mental game. Neglecting the psychological pressures of trading and not working on mental resilience can lead to burnout and poor decision-making.
Once a trader has a set plan and is disciplined towards it, nothing can stop him from making success in the markets. There is no chaos for an intelligent, focused and disciplined trader!
