8 Common Mistakes Traders Make
Trading the financial markets can be quite daunting especially for a novice trader. You inevitably make mistakes along the way and it is all part of the learning curve. However, we wanted to support you by listing the eight most common mistakes that traders make, so you know how to avoid them.
What are the most common mistakes traders make?
Opening Positions Based on ‘Gut’ Feelings
You should always make sure you have thoroughly researched the market you want to trade on. Some traders can often place trades based on their intuition rather than a logical thought process. This could sometimes lead to a profit but more often than not it leads to losses. You should ask questions about the market you are entering as well as looking at its price patterns and trends. One way of examining the market is to see if it experiences volatility, and if so how does that affect the way you would want to trade.
Not Following the Trading Plan
Having a trading plan in place is significant because it prevents opening positions based on your own bias. After experiencing the different emotions you encounter during trading you might want to scrap the plan you have in place altogether but it is important to stick to it, even when you are having a bad day on the markets. If you do have a bad trading day or even a series of bad trades then having a plan is ideal as you will be able to alter it accordingly to make sure you learn from your losses. Another way to keep a record of all your past trades in detail, both the successful and unsuccessful trades, is to have a trading journal.
Not Understanding Your Trading Platform
One of the biggest mistakes you could make is not understanding the trading platform properly. If you decide to open a trade and don’t understand how to place the market order or input in the incorrect trade volume, it could lead to fatal mistakes. We have some simple and quick MT4 and MT5 platform guides to help you find your feet.
Not Placing Market Orders
You are most likely to face losses during your trading experience but you should always try to minimise the loss you will encounter. The best way to do this is to place your stop loss and take profit order before opening a position. You also need to be aware of when the market is moving against you, placing stops will be able to help with this so that you don’t need to keep a constant eye on your trading platform. Please also be aware that even when stops are placed there can be slippage meaning your trade won’t close exactly at the level you intended.
Not Mitigating Your Risk
Before opening a position you need to ensure you can afford any losses if the market moves against you. You should ask yourself if the end profit would be worth the overall amount of money you could lose, this is also known as the risk-reward ratio. You might not have much risk appetite to start with but it is still important to figure how much capital you are willing to trade with.
Over Hedging Your Trading Portfolio
Some traders may have various financial assets in their portfolio, all from different markets. For example, they could have several FX pairs and then a number of Australian shares they are also buying and selling. Even though this can be tempting to do, especially when you first start trading, it is not a good idea to open numerous positions within a certain period of time. However, hedging is a good form of minimising risk and diversifying your portfolio but it will require more time and dedication to the market and analysis around the markets.
Letting Emotions Rule Your Decision Making
Don’t let the emotions you encounter when trading get the best of you, this could lead to uninformed decisions being made. If you had a really good day trading then you will be experiencing the excitement and you will probably be more eager to place your next trade, rather than reverting back to your trading plan and opening a position based on logic.
Some traders will become overconfident after a series of successful trades. Yet these series of winning traders aren’t going to last and what tends to follow are a number of careless mistakes being made. Trading buzz could lead to the trader opening several positions at once with the profit they made without doing the relevant analysis needed on that particular asset. To ensure that you avoid something like this make sure you are always sticking to the plan you initially created.
Take a look at our guide on creating your own trading plan which will help you to minimise risk before you start opening positions. Gain access to over 200 financial instruments and try our free demo trading account.