3 of the Biggest Trading Mistakes to Avoid
Mistakes are a common occurrence in life, and as much as we try to avoid making them, it’s inevitable that at some period we are going to be subject to these inconveniences. And no matter what skill level you are at in trading, you will always make a mistake here and there.
The impacts of this inconvenient truth can, however, be minimised. I’m not saying that after you read this you’re going to suddenly become a trading Einstein and be invincible against any possible undesirable scenarios in your trading day. As ideal as that may be, it’s just not a realistic expectation.
You will however, be more AWARE of these mistakes that can happen in your trading and when we are more aware of a possible situation, we can make well-informed, educated decisions that can prevent these mistakes, or significantly minimise the impacts of them.
1. Failure to Cut Your Losses
To be successful in trading, you need to be cut-throat. Utilise that right side of your brain and look at the facts of what is going on with your positions. Plain and simple, black and white FACTS. Because prices don’t lie, but our false sense of hope can most definitely obscure them into believing by some miracle that you’re the price will move in your favour, against all odds.
It’s basic human anatomy that we crave the satisfaction of being right, and thus it comes to no surprise that this trait is transferred directly across into the trading arena. However, by having this mindset, you will be hesitant to cut your losses when a trade goes against you, making you increasingly susceptible to bigger losses.
And the chaotic disaster that can result from this simply comes down to not wanting to admit that you are wrong, and the market is right, so you avoid this conflict by keeping your position open, and hoping for the best.
Sure, you may hit a rare stroke of luck and it may change in your favour, but eventually it will come crashing down, and your account will be severely impacted.
Trading is not about being right. It’s about being able to cut your losses whilst they’re small, and capitalise on opportunities to win big.
2. Could Have, Would Have, Should Have
The expression “could have, would have, should have” is one you can commonly associate with traders. You’ll often hear “if only I did this”, “if only I did that” or “Why did I exit here?” and the list goes on.
Let’s say you’ve placed a trade and immediately it’s working your favour. You’re feeling good, you’re feeling confident, and you can practically smell the money going into your account.
However, the unforeseen occurs, and price starts reversing towards your entry point, and your stop loss is hit. But this emotional rollercoaster hasn’t ended hear, price is now beginning to rise again, but you’ve already been washed out. This is when the “could have, would have, should have” comes into play. “If only I had been more patient, I could have hit it big!”
We all think it. But what’s important to remember is that there is no possible way to predict what the market is going to do, and therefore entering and exiting at the exact right price is also not possible.
Don’t blame yourself for what was a good trade by feeling disappointed by something that could have been. Deal with reality, and remain positive.
3. Getting Off Balance When Trading
Having balance within your trading is one of the most important elements in your trading strategy, which should be outlined in detail in your trading plan (which you can learn to develop yourself here). This will essentially come down to your risk management and having a good balance between the risk your trades pose to your current account.
Having good risk management in your trading will ensure your sustainability and longevity in the market by keeping your losses small, and maximising potential returns.