It’s ok to be wrong; it’s unforgivable to stay wrong.” – Martin Zweig
Contrary to what many beginners believe, trading is not a way to make ‘easy money.’ While a lot of glamour has been associated with the trading world, it is only those who research, gain knowledge, and learn from their mistakes that truly flourish as traders.
Of course, experienced traders make trading mistakes, too. However, simply repeating trading mistakes would be unwise.
Here are 5 common trading mistakes you can avoid while trading:
1. Not having a strategy
Failing to plan essentially translates to planning to fail. Whenever you decide to trade in the market, always back it up with a solid strategy.
Jumping into execution without a plan will catch you like a deer in headlights amid an adverse market movement.
How to avoid:
Make sure that you at least determine your entry and exit points and put risk controls in place.
Further, run a paper test in various conditions to understand the probability of your trades winning in various market scenarios.
Also, you may go through your track record at the end of each month to learn from your trades. PHI 1 allows not only the creation of strategies with its multi-symbol strategy creator, it also enables backtesting and bulk testing for multiple market scenarios.
This can help you have a robust trading plan and be confident in your live trades.
2. Failing to cut losses
Okay, you got into a trade and it did not go as you expected. So, you keep hoping against hope that it will work out?
To give your trade more room to work in your favour, you even start moving your stop loss further. This is a common trading mistake!
How to avoid:
If you hit the stop loss, it is a signal that you must take the loss and exit the trade. Basically, it is all about sticking to your plan.
With PHI 1, you can not only set standard risk controls but also various calendar risk controls, which takes substantial stress off you while you trade.
3. Getting emotional
One of the primary mistakes traders make is getting too emotional about their money and trading skills. Many traders expect to consistently earn profits from their trades and do not accept that trading is a mix of good and bad days.
Further, if a trade goes against them, they doubt their knowledge and research skills. If a trade works in their favour, they get overconfident, indulging in reckless trading.
How to avoid:
While trading, ensure that you steer clear of your emotions and biases. Automated or algo trading can solve this problem.
Once you devise a strategy and set it in motion, the algo trading platform takes care of your trades. You can now trade without the interference of your impulses.
4. Over-leveraging
Leverage can be a powerful weapon because it allows one to trade in sizes that are larger than their capital. Thus, you can borrow money to enter a transaction that is much bigger than your cash balance.
However, misusing leverage or over-leveraging is the single biggest reason for traders to shut shop. Leverage trading or margin trading can be addictive, however, remember that leveraging comes with a price.
Further, with the size of trade being huge, the potential for loss also becomes huge on leveraged money and can lead to stress and impulsive decisions.
How to avoid:
Be cautious while using leverage. Use only if your strategy is tested and has delivered consistently.
Also, ensure you stick to your trading plan with a strict stop loss. Remember, leverage is a double-edged sword. It can amplify profits but can also maximize losses.
5. Not diversifying trades
Common mistake traders make is concentrating their entire trading capital into one stock or security or taking similar positions in highly correlated assets.
This can literally wipe off your entire capital with an adverse movement in that asset.
How to avoid:
It is always wise to diversify your trades among multiple stocks, instruments, asset classes, and even markets. This way, a loss in one position can be offset by another, especially if your positions or assets have low correlation.
Have you committed any of these mistakes? Don’t fret! These mistakes are ‘common.’ In fact, every trader has made these mistakes during their trading journey. However, it is essential that one learns from these mistakes in order to move forward in their trading career.
Whether you are a novice or experienced trader, PHI 1 can take your trading up a notch with its many features. Still doubt it?
Take a free trial today!