5 Common Mistakes New Prop Traders Make

5 Common Mistakes New Prop Traders Make

You’ve purchased your preferred proprietary firm program via Prop Firm Match. That’s great! I bet the next step on your mind is to log into your firm’s trading platform, hit buy or sell, and watch the profits roll in, right?

Hold up— not so fast!

Trading may seem simple, but it’s not easy. Even if you have a clear idea of what to do, failing to prepare and avoid mistakes will likely cost you money— and eventually, your account.

This article highlights common mistakes new traders make and how to avoid them.

Diving into the market without a well-detailed trading plan results in disaster in the long run. Without a clear plan, you will be at the mercy of intuition or external opinion, leading to inconsistent results. A clear and well-defined process should be established to prepare you for every possible scenario. You will need to develop a trading plan that accounts for the following: your entry and exit criteria, risk management rules, and a defined trading strategy. Stick to the plan to avoid impulsive decisions.‍

Passing your challenge account in a day or hitting a particular percentage on your funded account may sound cool. So it’s easy to get carried away with the hopes of immediately passing the challenge; leading traders to take on excessive risk. Overleveraging can lead to a quick depletion of your trading account. Most firms have different leverage for different asset classes, so it’s essential to understand the leverage your prop firm offers and only risk as much as your balance can afford you. Limit your risk per trade to a small percentage of your account and ensure you leverage responsibly, ensuring you can withstand a series of losses without breaching your account.

Traders who ignore risk management and focus solely on potential profits often have catastrophic losses in trading. Risk management protects your account through establishing stop-loss and take-profit orders on your trades; using the appropriate position size and predefined risk-reward ratio. Without risk management, a single trade can breach your account, so it’s important to incorporate risk management into your trading.

Making decisions based on feelings such as fear, greed, or frustration can lead to losses and inconsistent results. Your trading decisions should be based on logical analysis. Emotional discipline is key in trading; taking a break after a series of losses to regain confidence and avoid the feeling of euphoria while on a winning streak. Learn to keep your emotions in check.

You can only improve what you track, this principle also applies to trading. Journaling is a practice that should be embraced by all traders. Your journal should track all your trades irrespective of the outcome: your exit and entry points, your risk-reward ratio, trade rationale, and the outcome of the trades. Having accurate information about your trading process will help you optimize your trading, identify patterns, and make necessary adjustments as required.

Prop trading can be overwhelming with traders making avoidable mistakes. Understanding and avoiding these mistakes will give you an edge and ensure your success in achieving your trading goal, which is consistent profitability.

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