When trading we all make mistakes, especially in the very beginning of our trading journey as we learn a lot of new things and strive to implement them correctly. Yes, even the most iconic traders make mistakes. But why make mistakes that you can easily avoid? We’ve compiled a list of 5 extremely common trading sins. Read the full article to know your enemy and avoid making these mistakes in the future.
Not Having a Trading Plan (Ignoring It)
In trading, just as in any other pursuit, timely preparation can be of great help and value. A lot of traders — either due to lack of experience or excessive emotional involvement — fail to carve out a decent trading plan and stick to it. Lack of a trading strategy can greatly increase the magnitude of your losses and eat up your hard-earned profits. You should know before you enter the trade the amount of money you want to invest, the exit point and the maximum loss you are ready to incur should things get messy. And remember: it is just as bad for your earnings when you have a good trading plan but fail to execute it.
Trading Against the Trend
Imagine opening a long position when the price of the asset suddenly begins to deteriorate. Basically, you are left with three options: close the position right away to cut your losses, buy even more of the said asset hoping for an upcoming reversal or just wait. The second option is also called averaging down, as you bring down the average price of your holdings. Adding to a losing position can work when trading on a longer time frame. However, in case of a short-term trader (especially when working with a multiplier) this strategy can deplete an account in no time. And that’s the situation you probably want to avoid.
Failure to Use SLTP Orders
Stop-loss and take-profit orders can become a valuable addition to your trading arsenal. Take-profit can be of great value, yet it is stop-loss that can make or break the deal. The latter one can also help you abide by the trading strategy you’ve developed. The thing is it is sometimes hard for people to close deals when necessary — either due to lack of time, poor discipline or excessive emotionality. An automated program, deprived of any feelings, can help you close the deal when neccessary.
Surrendering to Tilt
Your emotional state is of tremendous importance when you trade. The term ‘tilt’ comes from poker and means a state of mental confusion in which a person starts to adopt less than optimal strategies. It is no secret that when you do the wrong thing over and over again, you are not going to get great results. Quite the contrary. In trading that means that you can easily run out of money on your account in only one sitting. To break the vicious circle, a trader is advised to take a short break, relax and concentrate on activities, unrelated to trading.
Too Much Leverage
When working with IQ Option, you have an opportunity to trade most of your favorite assets with a multiplier, which means that the profit you make (and the losses you incur) are multiplied by the corresponding value. Novice traders oftentimes believe higher leverages will let them earn more and quicker. But in reality, it is usually just a road to oblivion. One sudden move in the wrong direction and your investment is wiped out. Do not rely on an extremely high leverage (at least, when you are not 100% sure about the direction of the trend), as it can do more harm than good.
As you can see, most mistakes in this list have to do with how your treat your losses, not earnings. Letting the profit grow is important, yet not as important as your determination to close losing deals before it is too late. Although you may already know what you are doing wrong, it will still take some time to develop a habit and avoid any of the above-mentioned mistakes. More things that you want to avoid in the upcoming article.