Biggest Roadblocks for New Traders
01/16/2012 3:30 pm EST
Beginning traders can take certain steps right from the onset to develop the same habits that work for veteran traders, explains Wade Hansen, who reviews common mistakes to avoid.
Today, we’re asking Wade Hansen about some of the common mistakes that beginning traders make. Wade, what do you see most often that beginners really need to work on?
Well, the interesting thing about beginners is they are coming in with a clean slate and they start hearing about different ideas for trading, and one of the mistakes that I see them making is they bounce too quickly back and forth between ideas.
They don’t get in and dive in deep enough to a topic to really understand how to apply it to their trading before they’ve maybe lost a little bit of money on a trade or two, and then they say “Hey, this one isn’t for me. I’m going to go find something new.”
They just keep doing that time and time again instead of focusing in on something, realizing that there are going to be some losses and some bad trades as they’re getting up to speed. That happens for everybody.
You have to have a little bit of patience with that, and the easiest way to overcome that is to use proper money management so you’re not risking too much in the beginning so that you get too discouraged too quickly.
See related: The Ideal Market for New Traders
And what’s the best way to go about learning some of these good habits?
Practice. You can look out there and find all sorts of information on any trading technique that you are interested in. Whether you are interested in trading stocks, or futures, or currencies, or options, whatever it is, there is a wealth of information available online, whether for free if you are going to pay someone for their services.
Once you get that information, however, you need to spend some time with it and then practice implementing it in the live market. Because any example that you’re going to get in an article, a video, whatever piece of educational information you’re looking at, is going to be dated to whatever the market conditions were like at the time the example was made.
You need to then take that information and see how it applies to today’s market, knowing that today’s market is going to be very different than tomorrow’s market and the day after that, and see how it works and just get used to it in real time.
How important is it to identify a methodology that one is comfortable with and stick to that rather than bouncing around between different methods?
It’s incredibly important. If you look at the medical profession, for instance, you don’t see doctors bouncing back and forth between specialties. That would be counterproductive.
You want your heart surgeon, who is working on your bypass, to have spent years studying heart surgery. You want to do the same thing in your trading.
You want to find something that you are comfortable with and then spend some time to really get good at it. If you are a jack of all trades and don’t know much about any of it, you’re not going to be very successful at any one of those trading methodologies.
See related: Make One Market Your Specialty
Do you recommend that people start out perhaps in one asset class and then expand or try and trade a number of different asset classes at once?
I would definitely start out in one, and if you are using technical analysis as the primary foundation for your trading, it will allow you to expand into other asset classes in the future because technical analysis on a chart bridges the gap between all different asset classes.
But definitely start out in one asset class while you’re getting used to it. If you try and bounce around too much between asset classes, that’s even more foundational information that you need to absorb really quickly.