In this article, we are going to discuss five things that can cause new traders with small accounts to fail. We will also discuss ways to prevent them from happening to you.
Five things that could make you fail as a trader:
- Lack of Methodology
- Lack of Discipline
- Unrealistic Expectations
- Lack of Patience
- No Money Management Plan
Lack of Methodology:
When you trade without a trading methodology, you do not have a way to identify a trade signal, whether it be a long or short signal. This makes it hard to correctly and consistently identify trades. To be a successful trader, you need to have a clear mental and concise method of approaching the markets. One way to do this is to trade a proven system. Another thing you should do is, have a trading plan in writing. The plan should include the analytical tools you use, times periods to trade, entry signals, exits, and risk amount on each trade. Print your trading plan and have it in front of you when trading. Before you enter the trade, ask yourself – Does this trade meet the requirement in my trading plan? Keep your plan simple. If you make to too complicated, you will not follow it.
Lack of Discipline:
This is related to having a methodology. Following a proven system and having a trading plan to follow will greatly help your trading discipline.
Trading is no different from anything else in life. More than likely you have spent many years in school to learn a trade or profession. Then each year in your career, you improved those skills. Trading is no different. When you’re starting out, your main objective should be not to lose your capital and have small gains. Then as you build confidence in your trading, you can start increasing your risks to increase potential gains.
Lack of Patience:
Many small account traders feel they always need to be in trades. This self-imposed pressure comes from the idea that you are missing the party and leads to picking lesser quality trades and over trading. Do not get upset about missing a trade. The markets will be open again tomorrow and will present other opportunities to trade. Wait for the right trade to come to you.
When trading a small account, it is important to manage the risk on each trade. Keep that risk in the 1 – 2% range for each trade. If you have a small trading account, then trade small. Knowing your account size, entry, target and stop prices allows you to know the risk on each trade.
I hope this was helpful.
Get more of Tucker Stipe's analysis, trade setups, and commentary at Simpler Stocks.