Trading is tricky and there are lots of mistakes you can make. Let’s take a look at 7 popular mistakes novice traders make and ways to avoid them. Read the full article to learn more.
Risking what you cannot afford to lose
Trading is a high-risk pursuit. From time to time, all traders lose money. The thing is to manage your risks and never put at stake what you cannot afford to lose. There is a huge difference between being positive and being unrealistically presumptuous. When traders keep track of their losses and consider them an essential part of the trading practice, they are less prone to reckless behavior. When, on the other hand, you believe in luck and anticipate the inevitable win, you are more at risk that you think you are.
Going all in
Arguably the easiest way to lose all your money is to go all in. Trading is not a casino, and luck should not be an integral part of your trading strategy. Every time you go all in you run the risk of losing it all. No trader is capable of winning all his deals. Sooner or later you will lose a deal and with it the entire trading capital. No matter how many wins you had before, you will have to start from the very beginning.
Trading the wrong time frame
Trading fundamental reports on a 5-minute graph can indeed be detrimental. But why? Fundamental factors may take up to several years to unfold. Inflation, GDP growth rate, and important political announcements are of much less use on a 5-minute time interval than, say, on a 1-hour time frame. The timing in this case is of utmost importance, as well. Be one minute too fast / too slow, and you are going to miss an opportunity and maybe lose money in the process.
Trading without a solid plan
A lot of traders use their emotions as guidance, sticking to the so-called intuitive approach. But only a few make it work. The thing is, you are constantly tempted to believe in blind luck and fortune when trading. You, therefore, will rationalize that hop and confuse it with the gut feeling (that is, in fact, nothing more than your desire to win). Trading is not gambling; this approach may work once or twice but will ultimately fail in the end.
Trading without a stop-loss
A stop-loss is an often-overlooked feature that can help any trader get a better control over his losses. According to industry specialists, you should learn to lose money (in a proper way) before you learn to earn them. A stop-loss does what it says, automatically closing loss making positions when a certain threshold is met. It can, therefore, help you greatly improve the overall effectiveness of your trading pursuits.
Changing your strategy too often
It is no secret that when a trading strategy stops working for you, you should go and get another one. Still, the question ‘How you define sub-par strategies?’ still holds. Some people believe that a strategy that fails, say, 5 times in a row is not to be taken seriously. But in reality, all traders will go through a losing streak sooner or later, and even a prominent strategy can demonstrate lackluster results.
Trading correlated assets
This one is not so obvious (and therefore quite dangerous). Most traders know that it is a good idea to diversify risks, buying and selling different assets instead of just one. What some of them forget is that different assets that appear to be different are in fact tightly correlated. Say EUR/USD and USD/JPY that will behave in a similar fashion when the USD goes up and the EUR and the JPY stay on the same level. When trying to diversify you should, therefore, be looking for truly independent assets.
