The next two articles will be about common mistakes and best strategies to do or not to do to be a winner or a loser in trading online.
The high rate of failure among traders can be attributed to different factors such as the excitement, the lure of easy money, the lack of preparedness etc…
Let’s start by saying that being overly emotional is never a good thing: fear and anxiety are bad counselor. When one first starts to trade it is very difficult to control emotions. By the time the fear is not eliminated totally, but it is possible to learn how to deal with it. As time goes by, the traders buy confidence and trust in their own way, feeling more relaxed.
After clarifying this, we can thus summarize in 4 points the most common mistakes in trading online.
- Lack of a Plan. It is important to spend time in learning the basics of trading. It is a fair assumption that a trader will begin to do some planning before engaging in the trade he wants. Furthermore, during the planning process he may learn things that he did not know that could affect his trade, and he will build plans to account for these factors as well. If a trader truly desire to succeed, he may finds himself becoming consumed by the depth and breadth of his plans.
- Money management & risks. It is amazing how many traders don’t understand the critical nature of money management and risk management. Putting all the money in a single stock instead of having a diversified portfolio, buying stocks in a bearish markets and retaining the stocks a bit longer in anticipation of more profits are some common mistakes that one need to avoid. The markets can reach out and knock you out if you make a mistake and leave yourself exposed for one single moment. It is wrong to believe that trading can generate “easy money” ignoring the downside risk.
- Trading in Different Markets & Overtrading. Most new traders only learn how to trade a rising market and few traders know really good strategies for trading in a falling market. If one doesn’t learn to trade “both” sides of the market, he is limiting the number of trades he can take. And this limits the amount of money he can make. There are also beginners thinking they have to be in the market all the time to make money and they see trading opportunities when they’re not even there. They end up making more transactions than they should make. This increases the risk of making more losses. A trader should know just when to exit the market and when to enter in order to make real money.
- Lack of discipline. One of the worst things that can happen to a first time trader is to have great success right off the bat because a trader’s short-term successes can plant the seeds of his long-term failure. The willingness to learn from mistakes and discipline are very important to never repeat a mistake already made and make a profit. If it’s a good idea to adapt your trading method to market conditions, it is a rather bad idea to change your mind based on the results of the short term. This attitude is very common in middle-level traders. After a round of poor results they will change their trading method, without actually understanding if there was a mistake, or if it was just bad luck.
Learning from mistakes is very important, but it is even more to learn how to accept losses because they are part of the trade.
The losses are part of trading, and experienced traders close positions with a loss without flinching; they close stop-loss positions every single day.
Stop losses are the cost that the trader incurs to conduct its business, just as the cost of an ordinary entrepreneur. It is important to leave behind a stop loss, to make room for the next trade.
Do not be too hasty and hungry. Take your time and play your game.