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8 Mistakes in Trading and How to Avoid Them

 

Trading is a high risk job. A wide range of traders fails in their trades. In this article, eight main reasons for traders’ failure are explained. You can read these eight reasons below.

 

1. Not having a trading plan and discipline

Having a written trading plan is the first step to starting trading. Decisions should be written to make your mind free. Having a trading plan keeps you away from emotional decisions in sensitive situations.

 

2. Having an incomplete trading plan

Not having a trading plan or having an incomplete trading plan is equally irrational and problematic. If your trading plan is incomplete or you don’t use a plan at all, you can be sure that you will not get any money from it. You need to be completely transparent about everything you do in trading.

 

An efficient trading plan will tell you the following:

  • The time of entering into a transaction; includes detailed rules, instruments used, market structure, timing, etc.
  • Your method to determine the limit of loss (Stop-Loss); includes choosing between point-based (fixing a specific price) and chart-based methods (for example, when entering a descending channel) and capital allocation for days of need.
  • How to set goals for buying or selling; It includes how to determine the rate of risk and fixed reward or use variable objectives in trading.
  • How to manage transactions
  • How to deal with market news (if sudden bad news comes out, how will your plan change?)
  • How to deal with correlated transactions (transactions that correlate with other assets.)
  • Your behavior against the situations that are recorded at the end of the week.
  • Time to subtract from the transaction amount.

 

This list is more than that. You should have a clear answer for each part of your trading work. Otherwise, you will not have the necessary confidence and trading will become very emotional and stressful work for you. Also, remember that a good trading plan may dictate other things that are not mentioned in this article.

 

3. Inadequate risk management

Most traders either have ineffective risk management or do not use risk management at all.

The size of your positions should be large enough to gradually increase your capital so as not to cause big trading failures.

Position size calculators are among the tools that can help you manage your risk.

 

4. Wrong expectations

Trading does not make anyone rich overnight.

What does a profitable trade mean to you? Have you ever thought about this?

Is it profitable to trade if you make 1% profit every week or do you have to make 100% profit every month to call yourself a profitable trader? Traders use the phrase “always profitable trades” all the time, but 90% of them don’t know what it means.

The question is if you haven’t set your goal, how do you expect to achieve it?

By managing expectations and abandoning ideas like doubling your capital every few months, you will see that profitable trading is not that complicated.

 

5. Short-term mentality

If your goal is to become a long-term profitable trader and you want to remain a successful trader for decades, then you need to forget the short-term mindset.

Forget gambling with your capital. Forget about achieving 200% annual profit.

Once you get rid of the popular short-term goals you see on social media, you’ll be able to get your trades right. Then you can focus on more important things like long-term progress and working on your trading plan and yourself. In this case, you will no longer have to trade every day or every week. This is where you will see that success in trading is achievable.

Most traders say they want to trade for life, but then they go about it like tomorrow is their retirement day.

 

6. Low capital

It is better not to try to get rich with a capital of 200 or 500 dollars. This idea has never worked and will never work.

But remember that even if your starting capital is not that big, you can still increase your chances of success by managing expectations and having a long-term trading mindset.

If your account balance is only a few hundred dollars, you should not focus on making quick profits. You need to build a long-term successful trading track record and put yourself in a position where your trades are always successful.

How much is 1 to 1.5% monthly profit achievable for you? Can you handle it? It is probably easier to do this than to make a 100% profit in a few weeks, and after a while, you will see that profitable trading and making money is not so far away.

 

7. Ignoring past mistakes

If you cannot learn from your past mistakes, you will never improve and you will repeat the same mistakes forever.

Having a record book of trades is vital for every trader.

 

8. Constantly changing trading plan

Constantly changing the trading plan is a direct result of the previous seven mistakes and not trying to correct them.

Whenever you find yourself stuck in a vicious cycle of repeatedly switching trading systems, you need to go back and analyze your methods. With this analysis, you will find out where you went wrong why you need to change your method and which of the seven previous mistakes you made.

Source: tradecity.com

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