In the trading world, success is not measured by the number of trades you open, but by your ability to stay in the market and manage risks wisely. Here are three common faulty thought patterns among beginner traders, and why they lead to inevitable losses:
1. The illusion of "capital recovery"
- False belief: "I’ll wait a little longer, and prices will return to where they were."
- Reality: Markets do not adhere to your expectations, and the opposite trend may continue for months. Holding onto a losing trade without a clear exit plan often leads to wiping out the account.
- Solution: Using a stop loss is a necessary defensive tool, not a sign of weakness. Accepting a small loss is better than waiting for the unknown.
2. Overconfidence in instantaneous predictions
- False belief: "This trade is guaranteed!"
- Reality: There is no guaranteed trade in the market. Even the strongest analyses remain probabilities. Making decisions based on emotion or haste can wipe out capital within minutes.
- Solution: Create a trading plan before entering the market, defining your entry point, profit target, and stop loss. Be prepared for the possibility of the trade failing.
3. Emotional drift in repeated buying