The Top 5 Mistakes Every New Trader Makes

Trading is something where you can make money. But, thinking how? Well, here you can make money by buying and selling things like stocks, forex, or crypto. And as a new trader, it’s normal to make mistakes. But the thing you need to consider is that these mistakes can cost you money, time, energy and make trading feel hard. But don’t worry, in this blog, we’ll talk about the top 5 mistakes every new trader makes, and how you can avoid them.

Mistakes Every New Trader Makes

Let’s take a look at the most common mistakes new traders make. If you know these mistakes, you can stay safe.

1. Trading Without a Plan

As a trader, it’s very important to have a trading plan before you start trading. Otherwise, you might face situations that you never even expected. Which can be really harmful for you. It’s like a roadmap that tells you when to buy, when to sell, and how much money to risk. This is one of the most common mistakes that every new trader to.

In trading, without a plan, you’re basically guessing. You might buy a stock because it “feels” like a winner or sell because you’re freaking out. For example, let’s say you buy a stock for $10. It shoots up to $15, and you become excited. But you don’t have a plan, so you hold on, dreaming of $20. Suddenly, it crashes to $7, and you panic-sell, losing money. If you had a plan like “sell at 10% profit”, you’d be smiling with extra cash instead.

How to Avoid It

• Write a simple plan: Grab a notebook and jot down your rules. Example: “I’ll buy a stock if it’s trending up and sell at 10% profit or 5% loss.”
• Stick to the plan: Don’t change your plan mid-trade just because you’re excited or scared.
• Test it first: Use a demo trading account (like a video game version of trading) to practice your plan without risking real money.

2. Risking Too Much Money

New traders often put too much money into one trade. They think, “If I bet big, I’ll win big”. But no, trading isn’t like gambling. You have to keep in mind that if you risk too much, you can lose everything.

For instance, let’s say you have $2,000 to trade. You go all-in on one stock. If it drops 50%, then your $1,000 is gone. Now you’re left with half your money, and now in this situation, climbing back will be hard for you. And this mistake can wipe out your account fast.

How to Avoid It

• Use the 1% rule: Never risk more than 1% of your money on one trade. If you have $1,000, risk only $10 per trade.
• Set a stop-loss: This is a tool that automatically sells your stock if it drops too much. For example, if you buy a stock at $10, set a stop-loss at $9.50 to limit your loss.
• Be patient: Small, steady wins are better than big, risky bets.

3. Following the Crowd

You may have heard about online traps, right? Following the crowd is something that lets people fall into traps. In trading, traders, especially new traders, often fall for this trap without doing any kind of research. For instance, you are seeing some people on social media saying, “Buy this stock, it’s going to go way up”. And without confirming the news, as a new trader, you jump in without thinking, just because everyone else is doing it. So, before taking any steps, better to get some knowledge. Otherwise, you will fall for this trap easily.

The crowd isn’t always smart. Sometimes, people hype up a stock to make money for themselves, not you. Take the GameStop craze in 2021. Social media went wild, pushing the stock to $347. New traders bought at the peak, thinking it would keep climbing. Then it crashed to $66, and they lost big.

How to Avoid It

• Do your homework: Check the company’s earnings, read news, and look at price charts before buying.
• Trust your plan: If your plan says “wait,” don’t buy just because others are hyped.
• Question the hype: If someone says a stock will “double tomorrow,” ask why. If it sounds too good to be true, it probably is.

4. Letting Emotions Control You

Sometimes you may feel doing trading is an emotional rollercoaster. Because when you make money, you will feel you’re on top of the world. But when you lose, you will feel so stressed, or sometimes it can make you feel mad. And new traders often let these feelings take over, and that’s when things go wrong.

Emotions always mess with your brain while trading. If you lose $100, you might think you will win it back and make risky trades. Or if you’re up $200, you might get greedy and hold too long, only to watch your profits vanish. For example, imagine you are buying a stock at $20. It climbs to $25, but you want $30. Then it drops to $15, and you feel mad at yourself. Feelings make you chase big wins or get scared when you lose.

How to Avoid It

• Stay Relaxed: If you’re feeling wild emotions, take a deep breath or walk away for 10 minutes.
• Stick to your plan: Your plan is like a calm coach; it doesn’t care if you’re happy or sad.
• Set limits: Decide in advance how much you’re okay losing or winning in a day, then stop trading

5. Ignoring Your Mistakes

As a trader, you know that everyone messes up in trading; maybe you also did, and it’s part of the game. But you know what is the biggest mistake? Not learning from those mess-ups. And that’s what lets you make the same mistake again and again. You are not alone; there are many new traders who keep making the base mistakes, like risking too much or chasing hype, and wonder why they’re not improving.

But just sitting and thinking why you are not improving isn’t a solution, right? To do better, you have to analyse your mistakes, and you have to learn from the mistakes you made. If you don’t learn, then you will be stuck in a loop. Imagine you keep buying stocks without a stop-loss and lose money every time. You’re not growing, you’re just throwing cash away. Learning from mistakes is how you level up as a trader.

How to Avoid It

• Start a trading journal: Write down every trade: what you bought, why, and what happened. It’s like a diary for your trades.
• Check your journal weekly: Look for patterns. Are you losing because you’re not setting stop-losses? Fix it.
• Learn from others: Watch YouTube videos, read trading books, or join online groups to pick up new tips.

Final Thought

You may feel trading is exciting and rewarding, but only if you’re careful. It’s okay to make mistakes, but it’s better to learn from others so you don’t repeat them. Try to start small, stay patient, and keep learning. You’re not just trading; you’re building skills to become a good trader. But always keep in mind that trading is risky, so always do your own research, learn to manage risk and only use money you can afford to lose.