Over trading
Most new traders think that they must always be long or short the market. They lose a lot of money during certain market stages like corrections, high volatility, or bear markets. Sometimes the best position is cash. Sometimes the best trade is no trade. Sometimes their is no signal just chaos. Profitable trading is taking signals for trades that have good odds for success and the right risk/reward ratio for your win rate expectations. Cash is a position in itself. The less I trade the more money I make.
Ignorant of their own ignorance
The more you don’t know, the more sure you are that you know everything. New traders many times do not understand the danger of big losses. They also do not understand the mental and emotional strain of having on trades with real money in real time. A lot of hubris and arrogance is born out of not being humbled by the markets. Looking at historical charts and past history is nothing like holding positions in real time.With skin in the game and not being able to see the hard right edge of the chart as it unfolds is a different experience than theories, back tests, and reading trading books. The real traders I know that have a ton of experience are humble and know that they don’t know the future.
Always thinking they know why something happened
“These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates an illusion that there is an explanation for everything and that the primary tast is simply to find that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust price action. The pain of gain is just too overwhelming to bear.” – Paul Tudor Jones
Survivor bias
Confusing a guru that was lucky on ‘market calls’ as being able to predict. Or following a trader that had a great winning streak due to a specific market environment or a few specific ‘stock picks’. A few traders and talking heads will always be right just out of the amount of predictions and people out their making them. Be careful not to confuse luck with skill. It is the long term that determines who has skill, the short term is just luck and randomness.
Fall in love with a trade
New traders at times marry stocks or fall in love with a trade and lose their sense of judgement. The longer you stay married to a bad trade the more expensive the divorce will be. Stubbornness and ego are expensive things in the markets. Losing your perspective and ignoring your stop loss is a step toward ruin. A stop loss has to be the exit strategy for a losing trade regardless of your conviction about it.