What Mistakes do Traders make? Here are costly mistakes.
Just like any other business, trading requires a good level of mastery for any trader to be successful. Trading has been mistaken to be a get quick rich scheme by many novice traders, something that has led to a huge trader turnover over the years. Many traders hardly make it beyond three years in trading. Why is this so? The trading mistakes below affect the longevity of traders in the market.
Lack of a trading plan
As the adage goes, failing to plan is planning to fail. Traders will immerse themselves into the trading world without learning the ropes and continue to hope that trades turn to their favor. Hope should never be used in trading rather one should engage logic. Traders need to plan their trading by developing a system that works for them. A system that has set parameters is a key ingredient for trading success. Don’t have a trading plan yet? Sign up to Value Galactica.
Lack of a trading plan leads to traders guessing their positions in the market, which is tantamount to gambling hence dangerous and unsustainable. Some traders have a working system but still choose to go against it and guess trades. It is important that traders stick to their trading system. If your system is not working, optimize and master it before you deployment to live market conditions.
Traders who do not understand their trading tend to trade emotionally. This sends them into a rollercoaster of emotions and before they know it, end up with a blown trading account. The psychology of trading plays a great role towards successful trading. Through mastery of psychology, a trader is able to know when to enter the market, exit the market, or patiently wait for suitable market conditions.
Overtrading affects traders negatively especially when they have made good returns and become overconfident. Overconfidence leads to traders taking many trades in turns. The trader exposes himself or herself to avoidance of his or her trading system. What follows is a losing streak and if the trader does not tame himself or herself to stay off the markets, he or she ends blowing his or her account. Sometimes the account can be left in deep drawdown that takes more than twice the time to recover it.
Lack of a stop loss
Traders need to have a stop loss in their trading system. This protects them from unexpected market crashes such as a flash crash. Also, stop losses guard traders from holding onto losing positions which expose them to more market risk. A trader should always have a stop less set. Importantly, the trader should have a profit target that is equal to, or more than the set stop loss. By so doing, a trader allows his or her trades to positively compound hence result to a net positive gain over time.
Here are more mistakes that traders make.
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