When you get started with online trading, it is a given that you will make mistakes. How else will you learn if you don’t make mistakes? But, there are some mistakes that you don’t want to make because of their disastrous consequences. It is true that some mistakes are unavoidable yet you should not let them become a habit and learn the right lessons from both unsuccessful and successful positions. Highlighted below are some of the common trading mistakes that are often made and how you can avoid them to get better at trading:
Not doing proper market research
Some traders decide to open or close a position because they have gotten a tip or they have a gut feeling about it. Yes, these do pay off sometimes, but you should make it a priority to back these tips and feelings with evidence. How can you do that? Market research is the way to go because this helps you in determining the volatility of the market and what direction it is more likely to go. Only commit after you have done proper research or else you will lose it all.
Trading without a proper plan
You need to have a trading plan before you enter the market because you will use them as blueprints for making your trades. This plan comprises of time commitments, a strategy and also the capital you wish to invest. It serves as the foundation of any position that you open and the outcome can let you know if any changes are to be made. You can maintain a trading diary to keep track of what works and what doesn’t as this will help in making better decisions in the long run.
Relying a little too much on software
There are some trading software that are undoubtedly helpful for traders. For instance, platforms like MetaTrader 4 provide full customization and automation to suit the individual needs of traders. However, before you start using one, it is a good idea to understand the pros and cons of these systems. The primary perk of these systems is that they execute transactions a lot faster, but their lack of human judgement can be a major disadvantage.
Not choosing the right broker
A broker provides you the trading platform you use when you want to trade and failing to choose the right broker can lead to major problems in the future. If they have high trading costs, you will not be able to get the returns you want. For a reliable and comprehensive broker, Kodimax should be your top choice. With this broker, you can enjoy top notch trading tools and platform, the highest level of security, smooth and flawless trading and excellent customer support to complete the deal. The account types are plenty and deposit requirements low so any trader can sign up easily.
Not cutting your losses
It is a grave error to let your losing trades run hoping that the market will turn. If you fail to cut your losses at the right time, it will wipe out any of the profits that you have made from previous trades. While making some losses is a part of trading, you can take advantage of stop loss orders for closing a position that’s going against the market. In this way, you can reduce your risk because you will cut your losses at the right time.
Over-diversifying your portfolio too quickly
It is recommended that you should diversify your trading portfolio because this acts as a hedge in case the value of one asset declines. However, it is certainly not a good idea to have too many positions open at the same time or during a short time period. Sure, it does have a potential of giving you high returns, but diversifying your portfolio requires a lot more work as well. For instance, you will have to keep an eye on more events and news that could lead to market movements. This extra effort might not be enough for the rewards you want.
Not understanding the concept of leverage
Leverage is simply the loan that you get from your broker for opening a position. A deposit is paid by the traders, which is referred to as margin, and they get the same market exposure as they would have gotten if they opened the full value of the position. This can be useful for increasing gains, but this means that your losses are also amplified. Yes, leverage can be a very attractive prospect, but you need to fully understand its implications before you open a position. Traders who have limited knowledge about leverage often use it too soon and then end up suffering from losses.
Feeling overconfident after a profit
One thing to remember is that winning streaks are not a thing in trading. The euphoria that you experience from a successful trade can be dangerous because it clouds your judgement and your decision-making, which leads to losses. When traders are buzzed from a win, they will often jump into another position with the new capital they have earned without performing a proper analysis. Again, this leads to losses and can wipe out all recent gains you have made. One way to combat this is by following your trading plan.
Letting emotions influence your decision making
Trading based on your emotions is not smart at all. Emotions, like despair after a disappointing day or happiness after a good one, can cloud your decision-making and judgment. This prompts traders to shift from their original trading plan and they decide to open positions without backing them up with any analysis. In these causes, they may even decide to let a losing trade run because they believe it will turn around, but it is unlikely to happen. Therefore, you have to stay objective and not let your feelings get in the way.
The key is to stick to your trading plan and you will be able to avoid most of the mistakes.