When it comes to becoming a successful trader, making mistakes is part of the learning process. Even the most knowledgeable and dedicated traders struggled to find consistency with their trading in the beginning.
Matt Choi CMT is a professional trader, educator and the founder of Certus Trading, where he offers a range of educational courses on how to trade stocks, ETFs, options, commodity and financial futures, and FOREX. Choi says a large part to achieving longevity in the trading world is having the inspiration and belief in what you do.
With that advice in mind, Matt Choi of Certus Trading reviews some of the most common trading mistakes to try to avoid.
Lack of structure
Like in any career, not having structure in your day-to-day can set you up for failure. In his 17 years of trading and mentoring traders, Matt Choi identifies lack of structure as a major crutch.
Choi explains: “After a while, I realized that the biggest reason why traders haven’t been successful is because they lacked structure in their trading. They’d be trading stocks today, and then jump to commodities tomorrow. They’d get distracted listening to financial news networks, which often contradicts their own analysis. They didn’t have a plan and if they did have one they weren’t disciplined enough to follow it. And as a result there is a lot of analysis paralysis going on, and they just can’t move forward with their trading.”
Allowing emotion to get in the way
Matt Choi says human emotions often hinders your trading ability. For this reason, he teaches students ‘rule-based trading’ to counteract emotional response.
“I teach traders how to find high probability trade setups using fixed parameters. What this means is that if the stock is showing A, B, and C, then it is a buy. Or if the stock is showing X, Y, Z, then it is a sell. And the best part is, we can program the A, B, Cs, and the X, Y, Zs in trading platforms, and it literally takes seconds to identify trade opportunities based on a set of fixed criteria,” explains Choi.
With this rule-based approach, it takes away human emotions and can also make finding trades more quickly, which means less time thinking about it.
Not having a plan
Trading exudes risk. It’s the nature of the business. Trading without a plan, however, is a huge mistake and one new traders should ultimately avoid.
“It is absolutely crucial to have a plan before getting into a trade. In fact, I don’t know any successful trader who trades without a plan. Period. I get into every single trade knowing exactly when I will take profit, and if I am wrong, when I will take a loss,” says Matt Choi.
Taking on too much risk
One of the most common types of risky trades are those that are illiquid, meaning, they are difficult to get in and out of the position. For example, there are a lot of penny stocks that are pretty thin. So even when you’ve made money speculating, often times you can’t get out and end up not making any money.
Matt Choi of Certus Trading reviews further: “I trade a lot of options, and early in my trading days I made the mistake of trading options that had a wide bid-ask spread. So although on paper I made a lot of money with those positions, the spread was so wide that when I tried to exit a trade, the spread wiped out all the profits.
Not waiting on the right trade
Being overzealous is also a pitfall a lot of new traders must learn to overcome.
A trader must exhibit the patience required in waiting for the right trade to match what the technical analysis indicates. Experienced traders know to wait for the right timing instead of forcing a trade, entering at the wrong price, and overtrading their account.
The bottom line is that traders often fail to accept the simple fact that they are human and are prone to making mistakes just as the most successful traders do. Matt Choi says the takeaway is to be able to structure a trading plan according to your goals, which is the biggest reason why successful traders are still trading today.