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Every trader makes mistakes. We buy and sell securities frequently and sometimes under intense market pressure. Under these situations, a simple mistake can make a difference between profits or losses.
While all traders make mistakes, new traders are more likely in making big mistakes that can blow out their accounts quickly. Their lack of understanding how the market works and not knowing how to protect themselves is a setback in trading in today’s volatile market.
These are the mistakes of trading and how to avoid them.
Every successful trader has a detailed trading plan. In the plan, it stated their tactics, entry points, exit points, maximum risk level and how to manage the trades. New traders usually jump into a trade without any of these. Sometime, even with a plan, they are not discipline enough to follow through with their own plan. The worst thing is that they trade with emotions.
A stop loss is an exit level where you place below our entry level. It prevents you from losing more than you can handle and stop your small losses from snowballing into a big one. Although a stop loss can result in premature exits, but its benefit outweighs its risk. You must learn how to place your stop loss correctly, so that your trades have enough space to fluctuate and not exit with too much losses.
A good trader will let go of a losing trade with minimum loss and live to fight another day. A bad trader will hold on to losing trade longer than he should and result in a big loss. A bad trader having an emotion towards his holding trades, cannot act quickly and correctly. This can lead in mounting losses and ultimately drain out their capital.
Holding too long to a losing position is a mistake. Adding more to a losing position is an even bigger mistake. Over the years, many traders have loss their entire capital by continuing adding to their losing position, in the hope of the market turning around soon, but it never did. Averaging up or averaging down is not good tactic to save a losing trade.
Another mistake that many new traders make is using leverage to trade more than they can manage. Using leverage, like margin, can help you to increase our winnings, but it can also magnify your losses. Excessive use of margin is risky and you must identify your risk tolerance level and trade within that level.
It’s common to get trading tips from many people. However, blindly follow others without doing our own diligence is also a big mistake. By the time the news reaches you, it’s already too late. Traders who follow the herd will end up entering a trade too late and become the last one to buy at the high.
Before any trade, it’s important to do a little homework and research the market you are planning to trade. New traders often make the mistake of not doing any research and this often get them wracked by market moves, that they can easily be avoided by doing a little bit of research. Financial reports, upcoming announcements and industry news are all important information to help you prepare for the trade.
In trading, you want to be focus. New traders, being introduced to many markets, have the tendency to trade multiple markets. This is a mistake as trading multiple markets can cause confusing and distract them from learning the necessary skills. Always focus on one market at a time.
If you want to be successful in trading, you need to watch out for these trading mistakes. Your trading journey is a long and hard one, it helps not to make any unnecessary mistakes. This list can be your guide to your trading success.