These “beginner” trading mistakes are made by everyone — from total newcomers to grizzled forex market veterans. No matter how long you’ve been trading, you’re bound to experience lapses in trading discipline, whether they’re brought on by unusual market developments or emotional extremes.
The key is to develop an intuitive understanding of the major pitfalls of trading, so that you can recognize early on if you’re letting your discipline slip. If you start to see any of the following errors in your own trading, it’s probably a good idea to square up, step back from the market, and refocus your concentration and energies on the basic trading rules.
Running losers, cutting winners: By far the most common trading mistake is holding on to losing positions for too long and taking profit on winning trades too soon. By cutting winners too early, you may not make as much — but then again, you literally can’t go broke taking profit. That said, you will deplete your trading capital if you let losses run too long.
TIP!
The key to limiting losses is to follow a risk-aware trading plan that always has a stop-loss order and to stick to it. No one is right all the time, so the sooner you’re able to accept small losses as part of everyday trading, the sooner you’ll be able to refocus on spotting and trading winning strategies.
Trading without a plan: Opening up a trade without a concrete plan is like asking the market to take your money. If the market moves against you, when will you cut your losses? If the market moves in your favor, when will you take profit? If you haven’t determined these levels in advance, why would you suddenly come up with them when you’re caught up in the emotions of a live position?
Resist the urge to trade spontaneously based on your instincts alone without a clearly defined risk-management plan. If you have a strong view, go with it, but do the legwork in advance so you have a workable trading plan that specifies where to enter and where to exit — both stop-loss and take-profit.
TIP!
Be aware of the increased risk of trading around important news and data releases. Study economic and event calendars to identify future event risks, and factor them into your trading plan. That may mean stepping out of the market in advance of such events.
Be aware of the increased risk of trading around important news and data releases. Study economic and event calendars to identify future event risks, and factor them into your trading plan. That may mean stepping out of the market in advance of such events.
Be on the lookout for my next blog where I will reveal 2 more "beginner" trading mistakes!!
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