Why do traders fail? Top ten ways to avoid trading pitfalls

August 20, 2020
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Moving markets make the trading world go round, but it’s important you learn to avoid the pitfalls. Here are ten top tips to help you.

We all want to enjoy the markets and to be successful traders. After all, when money – your money – is at stake, it’s important you know how to plan, budget, and strategize. In many ways, it’s much like running a business. You are the CEO of your trading empire, and if you want to be successful, you need to put in the work.

Nadex is here to help you plan for trading success. We’re not telling you that you have to be perfect, or saying you need to be psychic, but you do have to be in tune with the markets and learn how trends can reward you. Here are ten top tips to help you avoid the most common trading pitfalls.

Avoid trading pitfalls with these top ten tips

1. Trading could make you rich – but it takes work and is certainly not guaranteed

Just like a business, trading gives back what you put in. If you’re willing to do the work, you can reap the rewards and make a good return on your investment. If you’re lucky, you might start to make money from the get-go. However, luck is exactly what it will be – not skill, judgement, or careful planning. If you want to keep profiting and want to move beyond the instant gratification of one or two lucky trades, you have to focus: planning and researching is the only real route to take. The long-term rewards will far outweigh the ‘get rich quick’ mindset, which often leads traders who make some money initially to chase bigger profits and lose it all on one or two big gambles.

2. Trade with a plan – every single time

The world of trading can be hectic, but with a plan, you can avoid the chaos. A go-to method or system is not just a suggestion, but a must: every trader who is successful in the long term will have one. Why is a trading plan vital? You need to ensure that you are anticipating market moves, which is impossible without prior planning. If you’re not planning, you’re reacting to markets and making impulsive decisions, which leads to failure.

A demo account is a great option to help you formulate your plan. It’s free to sign up and you’ll get $10,000 in virtual funds to practice with.

3. Avoid the trap of trading scams

Make sure you look for legitimate trading opportunities and avoid the trap of trading scams. When you know what to look out for, it’s much easier to avoid this pitfall. Here are the key facts to know when trading with Nadex:

  • Nadex is an exchange. You must trade your own account – we don’t have brokers. Anybody posing as a broker is not associated with us and you should not trust them with your money.

  • Be vigilant on social media. Unregistered brokers and advisers can create multiple online profiles and fake testimonials. If someone contacts you on social media claiming they are from Nadex and saying they can trade on your behalf, this is fraudulent. Remember that you must trade your own account.

  • As a general rule, if you have any doubts, don’t engage and certainly do not send your money to another person. When you trade with Nadex, you open an account via our website, send any necessary documentation directly to our team, and deposit funds securely within our platform. Anything outside of this simple and secure experience is not legitimate.

Read more about fraudulent Nadex account managers.

4. Don’t overtrade: focus on quality, not quantity

If leg day was every day at the gym you would stop seeing results, and potentially blow out your knees in the process. You need to avoid overtrading in the same way you need to avoid over-exercising. You don’t see results every day; you see results over time. By focusing on quality, not quantity, you will be more likely to trade at the right times, when the opportunities are there for you.

5. Don’t be driven by emotions

You are human and emotions play a role in the choices you make. It’s dangerous to trade based on emotions – you could end up losing a lot of capital. Emotions will arise when making choices, but ensure you give your discipline the control. Improve your trading psychology to make better decisions.

6. Don’t take trading lightly

Trading is not a hobby that you dabble in here or there – it’s not like that unopened cold brew sitting in the back of your fridge. You need to take your role as a trader seriously and be a lifelong learner of the craft. Simply reading a few ‘how-to’ articles will not make you a successful trader (although learning the basics is a great place to start if you’re new to the markets). When you put in the effort, success will follow.

We’d recommend some of the following starting points to get familiar with the markets, and how to trade more successfully on Nadex:

7. Don’t put all your eggs in one basket

Don’t take all your capital and put it into a few trades. You might think you’ve spotted a great opportunity, but always consider the flip side: what would happen if the markets moved against you? Loss is inevitable in trading – nobody wins all the time – but planning ahead and managing your risk will ensure you can deal with it.

Work out maximum risk on a trade-by-trade basis – Nadex helps you do this every time you’re considering a contract. Your maximum risk and potential reward will be calculated and clearly displayed on your order ticket so you’ll know exactly what you’re getting into.

With Nadex, we have a range of products that allow access to various markets, so you can find opportunities that will suit you and avoid the temptation to pump all your capital into one or two trades. Learn more about binary options, knock-outs, and call spreads to see how they can help you trade strategically.

8. Define your risk-to-reward ratio

It’s that magic word again: planning. You should always define the amount you are willing to risk in comparison to the reward that would make it worthwhile. Don’t be tempted into placing trades where the risk is too high or the reward is too low – it’s ultimately unfulfilling, and can lead to bad habits. Plan ahead, plan your ratios, and plan your way to good trading habits.

9. Learn to let go of the losers

No one likes to lose, but it’s an inevitable part of trading. The sooner you realize this, the sooner you can find success. You might be the kind of person who doesn’t like to give up, but that won’t serve you well when trading. You have to take your losses head-on and then begin to move forward.

On Nadex, you can always close a trade out early, so if you need to move on, you can. If the markets move against you, it’s possible to close your position and cut your losses. Equally, if your trade is profitable before expiration, you can close out early to avoid the risk of a reversal.

10. Take advice on board

Getting started is the hardest part of trading, whether you’re an experienced trader exploring a new platform, or you’re dipping your toes into the markets for the first time. Our customer service team is always here to help you and can walk you through your first trade if needed. We also run regular webinars where we show you how to use the Nadex platform, carry out analysis, place trades, and generally help you get the most out of your trading experience.

It's time to start making your trading plan

Now that you know what to avoid it is time to start making a trading plan. Do not get caught out – avoid the habits that cause traders to fail. Knowing what works and what to avoid are the first steps to success, so you’re on your way to becoming a great trader. 

Sign up for a Nadex demo account – you’ll get $10,000 in virtual funds to try trading for free. Learn to avoid those pitfalls before moving on to a live account.

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