Regardless of the experience, a trader has, whether they’re a pro or a beginner, it is only human to make mistakes from time to time.
However, some mistakes can be easily avoided in this awesome industry we call “trading”.
By minimizing our chances of making mistakes, we can hopefully improve our chances of trading success. Now, let’s get started on the 5 most common mistakes traders make, and how to avoid them.
1. Forgetting to use a Stop Loss
A serious but common mistake when trading, is the use of a stop-loss.
A stop-loss is an order placed with a broker to buy or sell once the stock reaches a certain price. It is designed to limit an investor’s loss on a security position. Think of it as an insurance policy if you like.
Usually, traders forget to put a stop loss because they get caught up in the action of trading. It is important, however, to be in control of your personal approach towards the market. As we mentioned in previous articles, you shouldn’t let your emotions take over when trading.
The best way to avoid simple mistakes like this one is to slow down a bit and take more notice of your actions when trading. You can do this by keeping a trading journal and note down all the actions you take to fulfill a trade.
It’s also important to spend enough time preparing yourself for trading, which includes education, practicing your strategies, and analyzing the markets.
2. When traders use leverage at the wrong time
The first thing one should know about leverage is that it’s a quite risky tool to use.
Many might even say to leave it to the professional traders, and, to be honest, they’re kind of right.
If you’re new to trading, it’s better if you leave this tool on the side for now until you gain enough trading experience.
The reason behind this is that firstly, you probably don’t have enough capital to take such a risk. Even if you do, but you’re an inexperienced trader, you can empty out your trading account seriously fast using leverage.
The other reason is that you probably cannot yet pinpoint when to use it. In other words, you are yet to learn the perfect moments to use leverage.
In this case, your key should be education. When it comes to trading, try to learn as much as you can about how the industry and the market work.
For example, check out when the market opens and closes, the volatility of the market, and how much you stand to lose or gain per point of movement in the price.
The world-known businessman and trader Paul Tudor Jones once stated: “The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge.”
At EverFX we offer our clients a massive selection of informative content regarding trading and where to start.
Besides the helpful material, our team is always available to assist new and existing traders with their investments.
3. Abandoning your trading plan
There’s an old saying you probably heard of before, that says “If you fail to plan, you are planning to fail”. This quote is also “spot-on” when it comes to trading, and the most successful traders say it themselves.
The reason a trading plan should be essential when trading, is because it will be your roadmap for how to trade.
From entry, and exit rules, as well as risk management and position sizing rules, it can help you make logical trading decisions and define the parameters of your ideal trade.
By creating your own personal trading plan, and with experience over time, you will have the ability to “predict” with a level of certainty what way the market will swing.
But without it, you most likely will not be able to, thus putting a lot at risk.
The reason traders might ditch their trading plan, is fear. It might take some time to create the ideal trading plan for you, and that’s okay.
If you still can’t comfortably follow it, it might be time to consider making some serious changes.
4. Listening to other people’s advice
Traders, especially experienced ones, might have a lot of tips and “trading wisdom” to share with you.
However, you shouldn’t accept everything other traders tell you as a complete and accurate fact.
Each trader probably had a different trading strategy, or they might simply be wrong about some things.
Relying 100% on other traders’ advice might not end up being in your favor.
A great example of this is Jesse Livermore, one of the greatest traders that ever lived, where at one point in his career he made a huge risk on a tip he received about the cotton trade. He bet big and lost approximately 90% of everything he owned.
Therefore, do as much research as possible, and test out different strategies. You can also use a demo account if you want to practice risk-free.
5. Risking more than you can afford
Through trading, yes, you can make money. You can, however, also lose money. So, it all comes down to dedication, knowledge, strategy, and of course a trustworthy broker.
A golden trading rule states that you should never risk more than you can afford to lose.
It is a fact that trading involves high loss risks that everyone should be aware of when trading.
If you don’t have enough trading capital to start right now, practice trading on a demo account until you do.
Many brokers (EverFX included) offer demo accounts in which you can practice before actually investing real money.
Don’t panic if you make mistakes while trading. Everything has a learning curve, and occasional mistakes will only help you grow as a trader. Some mistakes can be avoided, and some others cannot due to other unpredictable factors. (We’re looking at you COVID-19!)
The point is, invest time first before investing money. Time in education, learning, and practice.
And if you need any kind of trading help, at EverFX we have your back!
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.
Risk Warning: Our products are traded on margin and carry a high level of risk and it is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved.