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5 Mistakes to Avoid When Trading

Trading the financial markets can be as rewarding as it can be frustrating from time to time. Whether you are a novice or experienced trader, you should steer clear of the most common trading mistakes to increase your chances of gaining from rising and falling markets.

Inadequate analysis of the markets

Financial markets are intricately connected to international economies and a number of factors can move them. Therefore, trades should be opened after a thorough market analysis has been conducted. An informed trading decision can be made once you understand the instrument you are looking to trade, you made sure that you are aware of any upcoming events that could move the price, and have studied specialists’ forecasts. Technical and fundamental indicators can also be used for further indications of future market moves.

Risky Risk Management

What sets good traders apart is that they only risk the capital they can afford to lose. The essence of this commonly used statement comes down to financial losses or the fear of financial losses putting significant pressure on traders. This can result in impulsive trading decisions. Statistics show that losses can be experienced twice as intensely as a successful trade. The same statistics also point to the fact that successful traders are better capable of detaching themselves from emotions and sticking to their plans.

That’s why risk management tools are essential when trading. The first step to establishing strong risk management is to simply ask yourself ‘How much am I comfortable to lose should it come to it?’ Secondly, you can familiarize yourself with the concepts of margin and leverage so as to avoid significant losses.

Trading Without Pending Orders, Stop Loss & Take Profit

With markets open 24/5, trading opportunities arise around the clock. You can take advantage of them even when you are asleep with pending orders, stop loss and take profit. Stop loss and take profit orders allow you to manage your trading positions effectively by automatically exiting markets at a predetermined price. Utilizing pending orders, stop loss, and take profit orders ensures that if the market goes in the direction you predicted, you are taking advantage of it as soon as your preferred price is reached. These features can take away the stress and help you focus on sticking to your trading strategy.

Losing control of your emotions

Despite having implemented appropriate risk management features in your trading strategy, you could still feel anxious about your trades. Based on the market you have invested in, prices can fluctuate in matters of seconds, days or months. Stay honest with yourself about how long you are willing to stay in the market before you hit the Close trade button. Trading requires not only a trading plan but also the discipline to follow it.

Trading More than you Afford to Lose

Risking a large proportion of your capital does not guarantee large returns. Traders who take greater risks than they are comfortable with, focusing only on the potential return tend to end up losing more than they can afford. The golden rule of trading is to invest only as much as you are comfortable losing, whether as a whole investment or per trade. Finding a suitable risk level for each trade is important.

Implementing and managing an effective trading plan is key to forming a successful trading strategy. However, you also need the support of a reliable broker like Traders Trust which offers optimum trading conditions to traders of all levels. If you are a new trader, you can build and test your trading strategies on a demo account before transitioning to the live markets. If you are an experienced trader, you can join a large community of traders celebrating Traders Trust’s 11th year anniversary with a Live Trading Competition.