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What are the 10 fatal mistakes traders make?
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process. That’s why you should be prepared to expect them and if possible not make them. Easier said than done you would say and you will be completely right. That is why I have compiled that list of trading mistakes that you should be trying to avoid. Real life trading will show you how “easy” that could be.
1) Trading without having a predefined trading plan
The first fatal trading mistake that traders make is trading with no plan. Having a written predefined trading plan will help you for two reasons. Trading depends on several aspects, which include the situation in the markets around the world, the status of overseas markets, the status of index futures such as Nasdaq 100 exchange-traded funds. Considering index futures is a wise option for evaluating the overall market conditions.
Make a to-do list and build a habit of researching the market before calling your shots. This will not only keep you from taking unnecessary risks, but it will also minimize your chances of losing money.
2) Over-leveraging
Over-leveraging is the second mistake of “what are the 10 fatal mistakes traders make”. Over-leveraging is a two-edged sword. In a winning-streak it could be your best friend, but when the trend changes, it becomes the greatest enemy. Recent talks about banning leverage higher than 1:50 for experienced and 1:25 for new traders in the UK have been a result of a lot of traders losing their money too fast. Whether it will happen next year or not is a matter of time for us to see. This is good news for most of the inexperienced traders, because it will somehow limit their exposure. It will allow them to follow their money management rules easier. For greedier and more impatient traders, this is terrible news. Fortunately, this might lead to a better result on their performance in the long term, as well.
Over-leveraging is a dangerous way to believe you can make more money quicker. A lot of traders are mislead into this way of thinking and end up losing all their money in a short period of time. Some brokers are offering insane amounts of leverage (like 1:2000) that can lead to nothing more than oblivion. Therefore, one needs to be extremely careful when selecting those levels and the brokers that represent them. That’s why diversification among different brokers is probably the best strategy.
3) Staying glued to the screen
a) Set entry rules
Computer systems are more effective for the purpose of trading because they don’t have feelings about the things that go into the trading environment and they are neither emotionally attached to the factors that are in one way or the other related to trading. Moreover, computers are capable of doing more at a time as compared to mechanical traders. This is one of the several reasons that more than 50% of all trades that occur on the New York Stock Exchange are computer-program generated.
A typical entry rule could be put in a sentence like this: “If signal A fires and there is a minimum target at least three times as great as my stop loss and we are at support, then buy X contracts or shares here.” Computers are more rational when it comes to taking quick decisions following a set of rules. No matter how experienced traders are, sometimes they tend to be hesitating at taking a decision no matter what their rules state.
b) Set exit rules
Normally, traders put 90% of their efforts in looking for buy signals, but they never pay attention to when to exit. At times, it is difficult to close a losing trade, but it is definitely wiser to take a small loss and continue looking for a new opportunity.
Professional traders lose a lot of trades each day, but they manage their money and limit their loses, which leads to a profitable t
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-REGARDS-
Kirthee Bane
