Market Whoopsies: Common Trading Mistakes

Let's face it, we all make mistakes.

In fact, the more philosophical among us would argue that it is these mistakes that make us human. And though the best we can do is take advantage of the knowledge we stand to gain by making them, when it comes to our investments, such costly mishaps can be a bitter pill to swallow.

So let's take a look at some of the most common trading mistakes, so we can avoid them before we have to learn from them!

Trading without a plan

Every good trader knows that he needs a trading plan to maximize his possibilities for success. There are certain questions that need to be asked and answered in order to create a viable trading strategy:

• What is my trading strategy?
• What is my time commitment?
• What amount of capital am I willing to invest?
• Where do I place my Stop-loss and/or Take Profit?

The next step after creating your plan is sticking to it, no matter what!

Guesswork - not performing proper market analysis

If your trading strategy involves simply looking at the charts to see what asset is appreciating or depreciating and then clicking buy or sell, then I hate to break it to you, but you’re not a real trader; you are something far worse: a gambler; and not even a good one at that.

Trading is not easy, but it’s not rocket science, either. Like most things in life, it requires knowledge, patience, and preparation. So before opening your next trade, make sure you do a proper market analysis, whether it’s technical, fundamental, or both. Don’t rely on “Close enough.”

Close, only counts in horseshoes and hand grenades.

Emotional Trading

Although I don't remember who, I’m pretty sure someone once said, "fear and greed are a trader’s worst enemies.” When you let your emotions impair your judgment, costly mistakes are almost inevitable. You see that your trade is doing well, and you think you can just cancel that take-profit order and keep it going? Odds are you will end up losing more than you were winning. That is Greed whispering into your ear. Don’t let it get the best of you. Stick to the plan!

On the other hand, you see your trade going in the opposite direction minutes after opening it. Maybe you should just close it now and prevent further loss. Maybe your market analysis was incorrect. Maybe, you’re just not cut out for this. When fear and doubt creep in, you gotta be a stone-cold killer, man. If you give in, you might end up losing out on big profits.

To make a long story short, emotions have no place in trading.

Over-reliance on software

Expert Advisers (a.k.a trading robots) are softwares that automate the trading process and can be valuable time-management tools for traders who do not always have the time to perform market analysis before a trade.

But if left unchecked, trading robots can prove detrimental to your trades, as they do not have the ability to account for sudden changes in the market due to news announcements and general fundamentals.

Many beginner traders seem to over-rely on these types of software without even bothering to learn how to trade properly, only to see their hard-earned investments dissipate into thin air because they put all their faith in a piece of software.

Expert Advisers have their uses but should always be monitored closely when in use.

Not Understanding Leverage

We’ve said it once, and we’ll say it a hundred times: Leverage is a double-edged sword, albeit a necessary evil.

Without leverage, most people would not be able to enter the markets, as the trading cost would be extremely high. But leverage also comes with certain dangers, which is why it is crucial to understand how leverage works and what level you would be confident with. A high leverage can bring bigger profits but also involves higher risk, while too low a leverage can minimize both.

There is no universal answer as to what leverage one should use, as it depends on many factors, including the type of asset, the size of the trade, and the available margin. So make sure you educate yourself before jumping into the market.

Not using Stop-Loss and/or Take-Profit orders

Never, eeeeeeever go into a trade without placing a Stop-Loss and a Take-Profit order, or at least one of them, if, for some reason, you cannot be bothered to do both.

Actually, there is one reason why you would not place these account-saving risk-management tools, and that’s if you are planning to simply waste your money.

Taking too many positions

If you are a beginner in the markets, you may not realize that there is a distinct difference between diversifying your trades and opening too many positions at the same time.

If you go too crazy in hopes of earning profits faster, all you will end up doing is maximizing your risk.

Always make sure you can handle the number of trades you have open, and by that, I mean make sure your margin can support them and that you can monitor them closely.

Overconfidence

We mentioned earlier that emotional trading can be detrimental to your investment. It is important to remember that winning streaks do not happen in trading. It’s good to feel good after a winning trade. You should embrace that feeling. Feel the pride that comes with it; hell, you should probably even pat yourself on the back. But do not let that feeling of euphoria turn into greed.

If thoughts like using your newfound profit to immediately open another position without carrying out proper analysis cross your mind, banish them. 98 out of 100 times, you stand to lose more than you have won.

Not being able to accept losses

Losses are a part of the game whether we like it or not. After all, let's not forget that every time you win a trade, there is someone on the opposite side of it, getting the opposite result.

Revenge trading (opening large positions after a loss in hopes of recovering) never worked for anyone. If you end up taking a loss in your trade, learn from it, brush it off, and get back to work, all in that order. After all, if you placed your stop-loss order correctly, your loss should be acceptable.

In the same sense, it is helpful to be able to cut your losses when the time is right, but that decision needs to be based on logic and on your trading plan, not on fear.

Giving up

So, you’ve had a couple of losses in your first trades. Well, here’s some news for you, sport: you can’t make an omelette without breaking some eggs.

Go back to the drawing board, in this case, your demo account. Find out what you have been doing wrong and fix it. Study, learn, and practise more. No one became a successful trader on the first, second, or 10th try.

If you just give up on trading without giving yourself a real chance, it was all for nothing. If you give it your best, and decide that you have no potential, then fine; maybe you weren’t cut out for this.

But never forget, even the tiniest spark can turn into a blazing fire.

At the end of the day, as we alluded to in the beginning, when used correctly, mistakes help us improve. But by taking steps to avoid these 10 market mistakes, you have a much better chance of succeeding in the markets.

Trading is risky.

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