We’re all human, and making mistakes is a common part of how we learn, especially when it comes to forex trading and investing. It’s not like online gambling, where you simply get online, make a few predictions and analyses, and make your bets; find out more here. While the trading concept may sound simple, it actually involves a lot of careful research, thoughtful strategy, and some experience to truly pull it off as a trader.
It is easy to get caught up in all the buzz and excitement of making quick trading decisions and hope that the market goes in your favor. But here’s where you are more likely to make mistakes, which can cost you big – literally.
It is for that reason that we compiled a list of five common mistakes traders and investors make and how to avoid them:
- No Trading Plan
Like with most things, getting into a trading platform without a plan is a grave mistake. Even experienced traders don’t put down any trades without a well-defined plan. You must know your exact entry and exit points and the amount of capital you’re willing to invest. Consequently, you must know the maximum loss you are willing to take before calling it quits.
As a beginner trader, you might not have an effective trading plan that makes you profits in most of your trades. And in cases where you have a plan, you may be prone to stray from it when it doesn’t work as you intended. Novice traders can reverse course altogether, which isn’t always the best move.
Device a solid trading plan and stick to it. That’s what any seasoned trader does and would advise new traders to do the same.
- Trading Too Much, Too Soon
It’s no secret that there is huge potential for earning insane profits from trading. But if you’re not too careful, you might be tempted to push the limits in the hope of making even greater profits quicker.
Unfortunately, forex trading doesn’t work like that. If you overreach, there’s always a chance that things could go against you. You could bounce yourself out of the market before you even have a chance to settle in.
Trading isn’t something that you casually throw in some money and wait for untold riches to come your way. It takes a lot of patience and skill to make any real profits.
Therefore, you want to build slowly and steadily. Start by testing things out using a demo account first to see how things work. Once you understand the trading process, you can start investing small amounts and trade in a few markets to get a better feel of things.
- Emotional Trading
Another common mistake among newbie traders is making the trading process an emotional experience. You know that feeling when you are on a good run and making all the right trades. It seems you can’t do anything wrong. You feel good about yourself and feel like you have mastered the trade.
What you must also know is that all good runs come to an end eventually. It is crucial that you remember as an online trader because, ultimately, it is your money at stake.
Therefore, don’t let your emotions dictate your trading behavior or push you into making decisions you wouldn’t normally make. You should try to temper your emotions and stick to a strategy you’ve set. Try as much as possible to protect yourself from making emotional trades and investments. It doesn’t always end well.
- Guessing
This is just as bad as trading without a plan. Trading without investing any education or understanding towards how the market works is no different from walking into a casino and throwing money on a roulette table, hoping to make profits.
Sure, you might be lucky once in a while because of the element of unpredictability and the volatility of the market. But by sparing time to learn and observe how the market works, you’ll have a better idea about the best trades suited for you and how much to stake.
- Revenge Trading
Eventually, every trader loses some trades once in a while. And while this is inevitable, you may feel the urge to want back in and try other trades to break even and prove you have mastered the market. Well, that’s exactly what revenge trading is. You want to get even and prove you are a winner.
Most times, revenge trading brings more pain than gain because you’ll probably not be in the best emotional state. You are more likely still seething and stressed out from your losses that you cannot make sound trading decisions.
Therefore, the best thing you can do is to avoid revenge trading altogether. When you have a losing trade or string of losses, it is usually better to step back and analyze what went wrong.
Summing Up
Trading isn’t easy, which is good. If it was easy, it wouldn’t be as fun. Plus, it wouldn’t be as profitable as it is. But not losing money is only half the battle, and avoiding these trading mistakes gets you past that door. Next, you want to learn how to make profits from your trades.
Whatever you decide, you would be wiser to start your discipline regime now.