Mistakes happen. This is a part of life. More importantly, it's how we learn and progress.
Mistakes in the trading business, however, can be costly. In addition to this, it can also discourage newer traders, eventually forcing them to throw in the towel. To help shorten the learning curve, we've come up with a brief list of the most common mistakes we see occur on a regular basis…
Coming into the markets unprepared is financial suicide! You're just asking to lose money. In fact, you'd be better off heading to a casino and ploughing your funds into a slot machine. At least you'll have fun whilst losing your capital.
Learning how to trade will, no matter what your trading guru says, TAKE TIME. Be prepared to accept this, or quite frankly, suffer the consequences.
A prepared trader will have a tried and tested methodology clearly written down. They will know when to pull the trigger and when to remain flat. A strict money management plan will also be something an experienced trader will have in hand.
Without at least these two above said components, you're playing a very dangerous game if you have active money in motion.
Running with losses
A professional trader will have no qualms in closing out a losing position. Let's repeat the last sentence. A professional trader will have no qualms in closing out a losing position. In fact, this should be written in stone and placed on your desks! The ability to take a small loss is critical to your success. Therefore, this is something one should familiarise themselves with, as it will happen a great deal throughout one's trading career.
Holding on to a losing position in the hope that it will eventually recover is a one-way street to account wreckage! Yes, you may have a few trades reverse back in your favour, but the ones that don't WILL ruin you!
Cap your loss early and live to fight another day. Staying in the game is paramount!
Not using stop-loss orders
The stop-loss mechanism is in place for a reason. It's to avoid huge losses to your account! Why traders choose to not implement a stop-loss order is something we'll never comprehend. Markets can move in the blink of an eye, with little to no warning. And without a stop in place, the losses to your account could be catastrophic.
USE a stop-loss order! They're there to help.
Using too much leverage
Leverage basically means having the ability to control a large sum of capital using very little of your own funds and borrowing the rest. While high leverage could potentially net one incredible gains, it can just as easily wipe you out. This sentence alone should highlight the need to correctly manage risk!
Staying in the game is crucial, in our experience risking more than 2% of equity in any one trade is VERY risky business.
Rather than thinking short term, try and think long term. Don't fall victim to the 'I want to be a millionaire next month' camp. Experienced traders typically know that there's little point in trying to be involved in every market turn. Overtrading not only causes stress, it also can deplete your capital in as little as only a few months! This would be difficult to come back from, not only from a financial standpoint, but also from a psychological perspective as well.
We have only really scratched the surface here guys. The mistakes noted above, nevertheless, are the most common we see. So, try to avoid these mistakes at all costs as it will have a marked effect on your trading results.