Everyone has been a new trader at some stage but if the percentages are to be believed then not many break out of the initial vicious circle & make it to being profitable & consistant traders.
Breaking out of this circle is much more than just being dertimined to make it as a trader. It is much better to have an idea of some of the areas in which errors have been made or yet to be encountered so expectation levels can be adjusted & the trader can regain the right path.
Here are some of the reasons that newer traders experience frustration in their trading.
1. Expecting Instant Success
An interesting one to start with & largely because it really isn’t the fault of the new trader to expect instant success. Unfortunately we now live in in an instant gratification world where people are not prepared to wait for success.
Also, new traders are normally met with “holy grail” trading manuals exclaiming how easy trading is.
Well, it isn’t.
Anyone telling that to new traders is lying, or at least its a half truth. Trading does get easier but much like learning to drive a car it get easier with time & experience but also & perhaps more importantly getting the right guidance which suits your style in the early stages. What most new traders don’t realise is that you could have the worlds greatest trading method yet if it doesn’t suit your trading personality then it simply won’t work!
“Learning to Trade is a lifelong marathon, not a 30 day sprint” – Damon Elliott
2. Method Hopping
Most people in trading don’t give themself enough time with any particular method to gauge success.
A few failed trades here & there does not make a method rubbish.
In fact there are probably millions of ways to make a profit in the market & not a single one is right or wrong.
It all depends on what works for that particular individual.
What a new trader must do is find a method that they like the look of & can see works, then spend time getting to know it at a much deeper level. that includes studying the losses, where it lost & how, & also studying the winners for clues.
The thrust of this point is that you must get to know your method beyond the basics & keep studying it. As an example I’ve been trading pivots for nearly 8 years now & I still spend time studying movement around it continually making minor tweaks here & there & making sure that I, as a trader evolve with my trading.
3. Market Hopping
Know your markets & stick with them!
Get to know which markets operate at optimum levels & when also know when to avoid them & when they appear “not their usual selves”.
When you market hop, like methods, you don’t get to know your markets on a deeper level & instead go looking for what you think is moving.
I’ve heard many a tale of new traders venturing out onto Gold or Oil on a slow day only to get caught out in a big movement on oil inventories or similar.
As an example, we know that the GBPUSD market slows right down after 4pm GMT so any evening where it is still moving is the exception rather than the norm.
Spending too much time “backtesting”. In my opinion there is very little value in backtesting a method.
The reason is very simple – you need to train your eyes to see it in live markets which backtesting won’t do for you. The most I personally have done with backtesting when i get an idea for trade entries is to glance back over a few days & if I’m nodding more times than not, then it has legs. At that point I can observe it in live market conditions rather than keep making stats for the sake of stats.
Stats don’t equal wonga in the bank.
If you find yourself doing too much backtesting then it might be worth stopping as you could end up with action paralysis due to not seeing the moves in live markets.
5. Not using Downtime Effectively
When you are at the screens during a trading session, that is time for trading. Not analysing, not backtesting just trading.
When your session is over then you can start analysing, taking screenshots, filling in journals & log books.
With modern technology you can store hundreds of screenshots on a tablet PC plus type up your notes. This also means you dont have to be tied to your PC or mancave for long hours which can be counter productive.
Make sure you have a clear idea of what you want to achieve during your downtime.
Many new traders will not be aware of any of the above so hopefully any new trader will find it of use. Also, you may find yourself trapped within the circle still trying to break out but not figuring out where its going wrong so again, the above list, while not exhaustive should point you to the key areas to focus on.
In the next article we will be looking at the Top 5 mistakes of “not so new” traders