Where Most Newbies Go Wrong

Not that I'm an expert in this field, but with a few years of experience and what I'm seeing every single day, I thought I'd put together a post for newbies, about what not to do when you start trading.

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Most people see trading as easy money. You sit in front of the screen, do nothing and bank the money, which could not be more wrong or far from the truth and the market shows you how wrong you are on this quite quickly. Let's see a few reasons why you can go wrong right at the beginning.

Confusing Trading With Gambling

There are some rules in trading, that are not negotiable. One is referring to risk management and it is about using a stop loss when you enter a trade. No stop loss, no trade. Simple as that.

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For a total newbie, this means when your stop loss is hit, you lose, which is true, but looking at the bigger picture, there's much more to it. What they don't understand is, stop loss is to protect your capital and better lose a small amount, then to be liquidated.

Those who don't want to understand how risk management works or how important it is, will sooner or later be humbled by the market. That is guaranteed.

Leverage

Leverage has a special charm and works like a magnet among new users. Quick profit is what everyone is after, nothing wrong with that, but in order to get that, you need to know which side of the bread is buttered on. When you don't understand what you're playing with, it's easy to get hurt.

Exchanges allow you the freedom to choose between isolated and cross margin, which is great if you know what you're doing, but so many don't understand what these two terms mean and thus, the implications. Isolated margin, in simple terms means you only guarantee with your position, while cross margin means you guarantee with your entire wallet.

Honestly, I never understood why use cross margin. If price reaches your stop loss, that means you are wrong in your analysis. You take your loss, limited to your position and make a better decision next time. Why risk your whole wallet?

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Trusting Indicators

Technology permits traders the use of a wide range of tools, indicators, trading bots, you name it, but this is a double edged sword and can easily be deceiving. Newbies think indicators are created to show you what price is going to do, which is totally wrong. Many of the indicators are lagging indicators, metrics that show you what price has been doing, nothing more. You still have to have a battle tested strategy and execute it perfectly.

Aksel Kibar, a Chartered Market Technician (CMT) and a reputable name in the industry once said:

If your chart looks like this, you should immediately go back to the drawing board and start simplifying things.
When you have the chance, you can draw as many lines as possible on the price chart, some are meaningful, some have no value at all and the steepness of these boundaries will change, some steep, some less steep. Eventually, you will land on one diagonal line, that would work. But the question is, how many trials you would have in a trading situation, to constantly revise your boundaries?

I see so many wannabes, trying to show off with what they actually don't even master, applying a few indicators on a chart, thinking if it looks complicated, then it's smart, but the truth is, these won't do the work for you. The more messy your chart is, the more chance to confuse you.

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Trusting Bots

The most profitable traders have years of studying and practicing behind them, which means very hard work, anger, frustration, blowing up accounts and so on. There's no shortcuts here and money can't replace the time spent in the market either. You need to lock in, isolate yourself, give up quite a lot to focus on studying, testing, and not many are willing to go through this part of the process.

Offering bot services seem to be a profitable business, but the truth is, no one can guarantee you success. Loss is part of the game, but those who pay for these services think they get a 100% profitable tool, which is a myth. I know cases where the dev has committed suicide over a trading bot, that seemed to be very profitable in certain market conditions, then when the market turned, most of the subscribers lost their money.

Even if you make some money using the bot, that still doesn't mea you can trade.

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Paid Groups

So many have the impression that the right thing to do for a beginner is to subscribe to a paid group, to learn from "professionals". In theory, it is not a bad idea to learn from more experienced traders, but the reality unfortunately is totally different. So many so called traders that have a couple of years experience and have made a name for themselves on X, start a paid group, offering training and signaling services to whoever is willing to pay a monthly fee.

The truth is, most of them are serving the same content that is available on the internet for free, packed in a different way. I can assure you, most of them has never invented anything and most of them have never read a book about trading or the financial markets. There are certified market technicians, marketing themselves as experts and based on their qualification, they should be experts indeed, but in reality, the CMT certificate only certifies that you successfully took the exam and not that you can actually trade.

Signal services are a big business, but not for the reason you may think. Everyone wants to make money, nothing wrong with that, the problem starts when we look at how you get it. Those that don't have time or don't want to study, are opting for signal services and trust me, there are quite many. I don't blame them, it should not be a bad thing, but ... as there's always a but, unfortunately, in so many cases, these subscribers are used.

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The trend, that has been going on for a long time is, to pump and dump and use the paying members as exit liquidity. What happens is, when the call is posted, the team has already entered the trade, then when their users joins and price reaches a certain level, the team is out, basically dumping on their paying members. There is several proof in this regard and you don't know who to trust.

So basically this is also a hit and miss and even if you manage to make some money and get your subscription value back (best case scenario), you still don't know anything about trading as you're relying on others.

I could go on endlessly with the examples, but this post is starting to look like a novel, so I'll stop here.

To close, I'm going to just say, no one is going to study instead of you, no one is going to do the work instead of you, no one is going to make you rich. There are no shortcuts here. Profit is for those taking risks, but taking risks is not equal to gambling. In a game of probabilities, risk management is key, but you can only manage your risk, if you know how.

Last, but not least, no one knows where price is going to go, this is why we have a plan for every scenario. If someone tells you they know what's going to happen in the market, they are lying.

If you're a newbie, you may want to check out these guides: