Common mistakes that prop traders make and how to avoid them

Though it's not always easy, prop trading—also called proprietary trading—may be a profitable path. However, there are still some common mistakes that many inexperienced and experienced traders make most of the time . In this article, we shall discuss these mistakes and tips to overcome them. Whether your knowledge of prop trading is just beginning or you wish to improve your skills, these tips will help you trade smarter in the coming days this year.

They say trading is a zero-sum game - if you don’t win, you lose. You may not win everyday but what if you have good risk management in your trades, you can minimise your losses and save your account. Bad risk management is among the most often occurring errors prop traders make. Many players just think of the positive and ignore the negative. If you lack efficient risk control strategies, a few bad transactions could destroy your account.

Tip: Establish a stop-loss figure for every transaction to help to lower the possible loss. Usually, it is 1% to 2%, just a small fraction of your selling money should be risked on each sale. Spread out your trades to avoid depending too much on one stock or approach.

Leverage is a double-edged sword – It can boost losses as well as rewards. While some traders think using leverage will help them make more money, they lose a lot of money even with the smallest market turns against them.

Tip: When starting out, think of the degree of exposure you are ready to tolerate. As your trading gets better, progressively raise your leverage. Before making a deal with considerable leverage, always consider the worst-case scenario and its impact on your account.

Failing to plan is planning to fail. Many of the traders joining the market lack a clear plan. Once in, they are tossed and turned by every volatility and swing, causing them to behave spontaneously and erratically. Traders, therefore, often lose control and produce erratic results.

Tip: Create a comprehensive trading plan with rules for risk management, transaction size limitations, and techniques for understanding when to enter and exit, when to stop loss and when to take profit. You may also want to include some trading strategies in your plan. For help with developing a strategy, you may want to visit the OANDA Labs page and view articles like,

How do moving average crossovers help identify market trends and signals?

or Granville’s Rules Trading: Buy Signal 1 and Sell Signal 5 Explained.

This is almost always a consequence of not having a well-thought-out trading plan. Prop traders often lose money when basing decisions on their emotions. People who are afraid, greedy, or angry often make terrible decisions, including chasing losses or clinging to bad deals for far too long. Do note that emotions can also work against you when you win, as many traders quickly become overly optimistic when they are on a winning streak.

Tip: To remove emotional prejudices, set clear rules for when to start and stop trading. To regulate your emotions, take some time to unwind following big wins or losses. Keep a personal journal to record patterns in your behaviour and increase your self-awareness.

Some traders think that doing more trade will boost their profits. Making too many trades, however, not only raises transaction expenses but also increases your risk exposure and saps your mental stamina. Discipline is key to being a successful prop trader. Many traders adhere to their rules when they start off in the evaluation phase, but discard them subsequently. This has resulted in many prop traders not making it to the first payout after qualifying for their accounts. Here in OANDA Prop Trader, we have clear and transparent rules where traders can refer to in the FAQs section of our website. In particular, our Daily Max Profit Limit rule is something that traders need to take note of in this respect.

Tip: Focus more on creating quality transactions than on quantity. Trade using your approach, not just to pass the time. Set a daily or weekly transaction limit to stop overtrading. Use mindfulness techniques to control anxiety and increase attention.

The lack of a trading log can cause many traders to trade without insight. When you trade every day, it’s easy to lose sight of your past experience and only focus on the present trade. However, experience is one of the best teachers that should not be avoided. You won't get better if you ignore your past trades, especially those that caused you costly mistakes.

Tip: Keep a comprehensive trading notebook in which you record when you enter and exit trades, their causes, and their outcomes. Review your work often and look for ways to improve it. Use trade tracking tools to track your success over time.

If you trade without thinking through important elements, including interest rate decisions, economic news, and international events, you risk losing money you did not expect. Moreover, many prop firms employ a ‘no news trading’ rule, which usually applies to high-impact data releases. To find out more about news trading restrictions at OANDA Prop Trader, read our FAQ. It is paramount to stay up to date with the latest economic data releases, which could impact your potential setups.

Tip: Keep an eye on the economic calendar and be aware of important events that can affect the instruments you trade. Platforms like MarketPulse by OANDA and TradingView provide real-time economic calendars, making it easier to track major events. If you're not sure where to start, you may head over to the tools section in our blog.

Not every prop firm runs in the same way. Some have strict trading rules, untrustworthy payout systems, or unfair distribution of profits. Should you choose the wrong company, your earning potential could be limited. The availability of tools is also crucial to give traders an edge. In the case of OANDA Prop Trader, it has a range of tools available on the OANDA Labs site.

Tip: Research prop companies carefully, focusing especially on their profit-sharing plans, corporate procedures, and credibility. See whether the company offers clear withdrawal rules and customer service. Most importantly, check on the tools and support provided by the firms

Avoiding these common mistakes can help you be far more successful as a prop trader. Over time, if you control your risks, apply a smart trading plan, and keep learning from past mistakes, you’re on track to become a smarter trader.

OANDA Prop Trader is a great choice if you are looking for a prop trading firm providing fair policies, clear incentives, and first-rate tools for traders. We offer industry-beating core pricing with spreads starting from 0.0 pips in FX and low commission. OANDA's prop trading program allows you to trade with virtual funds when qualifying through in a Challenge. There are eight different levels to choose from, providing you with up to $500,000 in virtual funds to trade with. Once you finish the two-phase Challenge, we’ll set you up as a signal provider and you may potentially earn up to 90% of any profits you make.

Create an account today with OANDA Prop Trader!