Tips to improve your trading performance
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Novice traders make a lot of mistakes in their trading. It is important to remember some trading tips through this non-exhaustive list.
All beginner traders reason in earned money. Since the amount of their deposit is generally small, they use leverage to increase their earnings (in the end it is their loss that is greater). Earning €5 on a trade is not really a hard sell. But on a $500 account, that's 1%. That's great performance. So stop thinking in terms of money. Have you ever seen a financial institution that does not speak to you in terms of percentage? No, the only ones that do are the ads you find on binary options like winning €1,500 in 2 hours.
It is not wise to reason in money terms. To succeed in trading, you have to be able to stop thinking about money. It avoids taking extra risks and keeps your head cool.
I know it may sound strange to say this, given that most people come to the financial markets to earn money. This objective quickly becomes an obsession. Money is then your only guide and it gives way to your emotions. I'll make it quick, you will end up razing your trading account. If you are new to trading and even if you are more experienced, the goal is not to earn money but to last. Lasting allows you to progress, improve your trading and therefore ultimately make gains. If the financial markets and trading do not interest you, then find yourself another occupation. In trading, there must be a notion of pleasure, a desire to learn, to work on oneself.
It's a classic, but it never hurts to repeat it. When we look at the brokers' statistics, we see that a large majority of novice traders do not place a stop loss. In some cases they end up cutting their position manually, nauseated by trading but it is already too late. As a result, their average earnings are lower than their average losses on all their trades. It's hard to win under these conditions. I suggest that you consult the page Let the gains run and take the losses.
A stop loss is mandatory on all your positions. So stop being smart and thinking you're stronger than everyone else, accept your loss! You can't win trading if you don't know how to lose.
Being well trained is synonymous with using a demo account. And when I say demo account, it's not just to test the platform by passing a few trades. The demo account is where you need to build the basics of your trading strategy and learn to manage your risk. A demo account actually teaches you discipline and rigour that are two essential elements if you don't want to raze your trading account. So yes, sometimes it's boring to be on a demo account, but remember trading tip no. 2.
Becoming a trader takes time, work and a lot of patience! If you're in a hurry in life, move on, trading is not for you! Trading is a bit like golf, one day you think you have understood everything and in fact that's not the case.
It is a great classic for novice traders. They detect a bearish or bullish signal but do not wait for it to be validated before taking a position. For example, they will enter long before the neck line break of a double/triple bottom. For them this figure is bullish, so why wait? Two reasons:
- As long as the bearish/bullish signal is not given, the uncertainty on the future evolution of the price is stronger. The technical analysis is based on probabilities. If you do not wait for the confirmation of the signal, you greatly decrease the chances of your trade’s success.
- That leads to regrets. You tell yourself afterwards that you should never have taken this trade since the signal was not given. And regrets, lead to a lot of bad things in trading, it is the open door to emotions (enemy of the trader, see psychology and trading). If you have waited for the bearish/bullish signal to take a position, you have no regrets. It's just that the market didn't agree with you, but that doesn't mean you were wrong to take the signal. Being wrong and the market making you wrong are two totally different things!
If you do technical analysis, do not pollute your mind with fundamental analysis. To master fundamental analysis well, you need knowledge that beginners generally do not have. Moreover, the fundamental sometimes sends signals contrary to technical analysis and you feel lost, you do not know what to do. In the long run, fundamental analysis is always right, but if you try to use it in the short/medium term, the effects are disastrous. If you want to have a broad view of the prices, look at the daily or weekly charts.
It is also better not to pollute your mind with the various news items that are published throughout the day. They only confuse you, you look for logical reasoning to the market reaction and very often there is none. It is simply the high frequency trading machines that are having fun. If the movement according to the news is frank, technical analysis will allow you to capture it. There is no need to look at the published figure. You can do it but after the fact, with a rested mind, not in the heat of the moment.
By hearing things everywhere, they end up influencing us in our trading, by giving us a reason to trade. We've kind of already made the choice in our heads and we are blind to anything but that. This type of behaviour leads to errors, to a misinterpretation of the signals sent by the technical analysis.
Careful, I'm not saying you shouldn't look at the international economic calendar of the day to see the different publications. To be aware that news is going to be published is good (it means that you are not surprised by volatility), but to try to analyse it is, in my opinion, to be avoided.
Leverage is poison. For individuals, it should be prohibited or severely restricted on each position. Using a little leverage on each of these positions, why not, in moderation, but using leverage on a single position will necessarily lead to the loss of your capital.
I pull my hair out when I see some novice traders looking for brokers offering the most leverage. Leverage is your enemy. If you think leverage, you think money, and if you think money, your emotions will dictate your trading and you will lose all your capital. If almost all individual traders are losing out in the financial markets, it is because of this. Stop believing yourself superior, you are like everyone else, run away from leverage and instead try to last.
If you process CFDs, never use leverage! If you trade Forex, always choose a broker with micro lots (0.01 or 1000 units). If you have a small trading account, you will be forced to use leverage against your will (if you deposit less than €1,000), so limit your number of simultaneous positions (2 or 3, never more). I suggest that you read the page: Money management for small Forex accounts.
Novice traders always tend to want to copy everything without thinking. You don't copy a trade just because the trader is supposed to be good, you copy it only if you fully agree with what he says, if it is in line with your trading strategy. You will not make money by copying a trader for the simple reason that you do not know how he manages his risk, when exactly he cuts his position, if an element has made him change his mind. Copying this does not teach you how to trade, it just makes you dependent. Be inspired yes, copy no!
Your best advisor is yourself. A demo account is there for you to gain self-confidence. It will also allow you to gain confidence in your trading strategy and be able not to question it at the slightest phase of loss. It is essential.
Having self-confidence is daring to take a position when your trading strategy gives you a bearish/bullish signal, daring to go to the end of your trade (not cutting your gain position too early), knowing how to take your loss when it is necessary while knowing that you are able to catch up later.
This long list of trading tips is incomplete. I simply addressed the points that I felt were essential in dealing with the most common mistakes made by novice traders. Do not hesitate to complete it, to react, to share your experience.
Trading tip no. 1: Reason with a percentage
All beginner traders reason in earned money. Since the amount of their deposit is generally small, they use leverage to increase their earnings (in the end it is their loss that is greater). Earning €5 on a trade is not really a hard sell. But on a $500 account, that's 1%. That's great performance. So stop thinking in terms of money. Have you ever seen a financial institution that does not speak to you in terms of percentage? No, the only ones that do are the ads you find on binary options like winning €1,500 in 2 hours.
It is not wise to reason in money terms. To succeed in trading, you have to be able to stop thinking about money. It avoids taking extra risks and keeps your head cool.
Trading tip no. 2: Don't aim to earn money
I know it may sound strange to say this, given that most people come to the financial markets to earn money. This objective quickly becomes an obsession. Money is then your only guide and it gives way to your emotions. I'll make it quick, you will end up razing your trading account. If you are new to trading and even if you are more experienced, the goal is not to earn money but to last. Lasting allows you to progress, improve your trading and therefore ultimately make gains. If the financial markets and trading do not interest you, then find yourself another occupation. In trading, there must be a notion of pleasure, a desire to learn, to work on oneself.
Trading tip no. 3: Always place a stop loss
It's a classic, but it never hurts to repeat it. When we look at the brokers' statistics, we see that a large majority of novice traders do not place a stop loss. In some cases they end up cutting their position manually, nauseated by trading but it is already too late. As a result, their average earnings are lower than their average losses on all their trades. It's hard to win under these conditions. I suggest that you consult the page Let the gains run and take the losses.
A stop loss is mandatory on all your positions. So stop being smart and thinking you're stronger than everyone else, accept your loss! You can't win trading if you don't know how to lose.
Trading tip no. 4: Take the time to train yourself well
Being well trained is synonymous with using a demo account. And when I say demo account, it's not just to test the platform by passing a few trades. The demo account is where you need to build the basics of your trading strategy and learn to manage your risk. A demo account actually teaches you discipline and rigour that are two essential elements if you don't want to raze your trading account. So yes, sometimes it's boring to be on a demo account, but remember trading tip no. 2.
Becoming a trader takes time, work and a lot of patience! If you're in a hurry in life, move on, trading is not for you! Trading is a bit like golf, one day you think you have understood everything and in fact that's not the case.
Trading tip no. 5: Do not anticipate movements
It is a great classic for novice traders. They detect a bearish or bullish signal but do not wait for it to be validated before taking a position. For example, they will enter long before the neck line break of a double/triple bottom. For them this figure is bullish, so why wait? Two reasons:
- As long as the bearish/bullish signal is not given, the uncertainty on the future evolution of the price is stronger. The technical analysis is based on probabilities. If you do not wait for the confirmation of the signal, you greatly decrease the chances of your trade’s success.
- That leads to regrets. You tell yourself afterwards that you should never have taken this trade since the signal was not given. And regrets, lead to a lot of bad things in trading, it is the open door to emotions (enemy of the trader, see psychology and trading). If you have waited for the bearish/bullish signal to take a position, you have no regrets. It's just that the market didn't agree with you, but that doesn't mean you were wrong to take the signal. Being wrong and the market making you wrong are two totally different things!
Trading tip no. 6: Stay focused on technical analysis
If you do technical analysis, do not pollute your mind with fundamental analysis. To master fundamental analysis well, you need knowledge that beginners generally do not have. Moreover, the fundamental sometimes sends signals contrary to technical analysis and you feel lost, you do not know what to do. In the long run, fundamental analysis is always right, but if you try to use it in the short/medium term, the effects are disastrous. If you want to have a broad view of the prices, look at the daily or weekly charts.
It is also better not to pollute your mind with the various news items that are published throughout the day. They only confuse you, you look for logical reasoning to the market reaction and very often there is none. It is simply the high frequency trading machines that are having fun. If the movement according to the news is frank, technical analysis will allow you to capture it. There is no need to look at the published figure. You can do it but after the fact, with a rested mind, not in the heat of the moment.
By hearing things everywhere, they end up influencing us in our trading, by giving us a reason to trade. We've kind of already made the choice in our heads and we are blind to anything but that. This type of behaviour leads to errors, to a misinterpretation of the signals sent by the technical analysis.
Careful, I'm not saying you shouldn't look at the international economic calendar of the day to see the different publications. To be aware that news is going to be published is good (it means that you are not surprised by volatility), but to try to analyse it is, in my opinion, to be avoided.
Trading tip no. 7: Do not use leverage
Leverage is poison. For individuals, it should be prohibited or severely restricted on each position. Using a little leverage on each of these positions, why not, in moderation, but using leverage on a single position will necessarily lead to the loss of your capital.
I pull my hair out when I see some novice traders looking for brokers offering the most leverage. Leverage is your enemy. If you think leverage, you think money, and if you think money, your emotions will dictate your trading and you will lose all your capital. If almost all individual traders are losing out in the financial markets, it is because of this. Stop believing yourself superior, you are like everyone else, run away from leverage and instead try to last.
If you process CFDs, never use leverage! If you trade Forex, always choose a broker with micro lots (0.01 or 1000 units). If you have a small trading account, you will be forced to use leverage against your will (if you deposit less than €1,000), so limit your number of simultaneous positions (2 or 3, never more). I suggest that you read the page: Money management for small Forex accounts.
Trading tip no. 8: Gain confidence
Novice traders always tend to want to copy everything without thinking. You don't copy a trade just because the trader is supposed to be good, you copy it only if you fully agree with what he says, if it is in line with your trading strategy. You will not make money by copying a trader for the simple reason that you do not know how he manages his risk, when exactly he cuts his position, if an element has made him change his mind. Copying this does not teach you how to trade, it just makes you dependent. Be inspired yes, copy no!
Your best advisor is yourself. A demo account is there for you to gain self-confidence. It will also allow you to gain confidence in your trading strategy and be able not to question it at the slightest phase of loss. It is essential.
Having self-confidence is daring to take a position when your trading strategy gives you a bearish/bullish signal, daring to go to the end of your trade (not cutting your gain position too early), knowing how to take your loss when it is necessary while knowing that you are able to catch up later.
Conclusion
This long list of trading tips is incomplete. I simply addressed the points that I felt were essential in dealing with the most common mistakes made by novice traders. Do not hesitate to complete it, to react, to share your experience.
