First off, there are two types of mistakes that a trader can make:
· The small ones · The big ones
Yes, you’ll definitely make small mistakes along the way – I guarantee it. You might buy a security when you intended to sell it, simply because you pushed the wrong button. Or maybe you’ll buy the wrong stock, just because there’s a typo when you enter the symbol. Another possibility is placing the wrong order because you enter a buy order 5000 quantity instead of 50. These types of things have happened to all of us.
They’re small mistakes, and they’re “forgivable.” With a little bit of luck, you might even be able to profit from them.
However, there are big mistakes that you absolutely MUST avoid if you’re going to be a successful trader.
1. Struggling To Identify the Direction of the Market
Traders use very complicated formulas, indicators, and systems to identify a trend. They’ll plot so many indicators on the screen that they can’t even see the prices anymore. They think that the more complicated a system is, the better it should “predict” the trends. As a result, they completely lose sight of the basic principle: buy when the market is going up and sell when the market is going down.
2.Not Taking Profits
By their very nature, traders are greedy. After all, you want to make money. A lot of money. And you want to make it fast. “Get rich quick,” right? Every trader wants to get rich, and they want to do it in one trade. And that’s when they lose. Trading success comes from consistency, not from a trading “grand slam.” There are a lot of newbie traders out there who believe that their fortune will be made in just one amazing trade, and then they’ll never have to work again for their entire life. This is a dream, a dangerous one. Successful traders will realize that right away. The best, and usually only, way to make a fortune in trading is consistency. And this fortune will probably be made in small amounts. Unfortunately, most traders go for the big wins, which result in big losses. It makes sense that traders are more interested in larger profits per trade. What would you rather have – a fifty dollar bill or a five dollar bill? Well, that’s obvious! But when it comes to trading, it’s not that simple. If you DON’T take the five dollar bill, you may lose fifty dollars of your OWN money, or more. The main thing to keep in mind is this: even though you can’t take the 10000 right away, you can take ten 1000 over a longer period of time. And the end result is the same – 10000 And that’s the main point here: small, steady profits add up. This is notto say you’ll never have a big winner. In options trading for example, it’s pretty common to have profits of 100%, 200%, or even 1,000% in just one trade. So, it’s not impossible to snag the big profits – it’s just not something you should count on. If you expect numbers like this all the time and accept nothing less, you’re setting yourself up for guaranteed disappointment. The key to trading success: small but consistent profits. Consistency is the key, because if your profits are consistent and predictable, then you can simply use leverage to trade size. Therefore, you MUST know when to exit with a profit. Resist the temptation to stay in “just a little longer, for just a little more.”
3. Not Limiting Your Losses
The only way you can make a fortune with trading is to actually stay in the game, and it’s hard to stay in the game when you’ve already lost all of your dough. Losses are a part of our business. The key to trading success is to limit your losses. Too many traders are giving a trade way too much “room,” and they’re taking big hits, which can shrink an account down by 20%, 30%, and sometimes even 40%. Set small losses. As outlined in the chapter “Is It Really Possible to Make a Living As a Day Trader?”, your average loss should be smaller than your average win, because then you’ll be making profits even if your winning percentage is only 50%. Always know when to exit a trade.
4.Trading the Wrong Market
Here’s another key to trading success: trade a market that is MOVING, either up or down. You know you should buy when the market goes up and sell when the market goes down. So stay away from a market that is choppy or just moving sideways, and start trading a market with nice trends.
5.Lack of a Trading Strategy
You MUST have a solid trading strategy. Having a trading strategy is probably the single most important thing you can do in order to succeed with trading. Having a trading strategy means having a pre-defined set of rules that you have developed for your day trading. It means knowing what you’re doing instead of just gambling. Too many people start off day trading without a strategy, which means that they’re completely unprepared. With a day trading strategy, you're way ahead of the crowd, and you’ve increased your chances of making money with trading.
6. Not Controlling Your Emotions
· Greed – “I’m sure the market will continue rising, and I’ll make millions!”
· Fear – “Please…. I don’t want to experience another loss.”
· Panic – “Oh no, the market is moving fast. Why? What should I do? The sky is falling…!”
· Indecision – “Should I enter this trade? Or should I wait? Ok, now I’m in a trade: should I take profits? Or not yet? Hmm, the trade goes against me: should I get out now, or should I give it a little bit more room?”
· Excitement (hopefully!) – “Hey, I made money!”
How many negative emotions are on this list? Too many! In order to become a successful trader, you have to have control over your emotions. The best strategies and tools are useless if you lose your head while you’re in a trade. Remain calm, cool, and relaxed. Control your emotions – don’t let them control you.
7.Over trading
Many traders think that “quantity” is better than “quality.” They believe that if you just throw enough punches, one will eventually hit. They trade like maniacs and make their broker rich. Traders are overtrading for the following three reasons, and none of them are good:
1.) Greed
You just closed a winning trade. You followed your plan and made the profits that you were looking for. But the market keeps going up. You think, “I should have stayed in this trade,” so you jump right back in. And then you realize that YOU were the one who just bought the high of the day.
2.) Revenge
You lost money. The market has been mean to you. “They” just took out your stop and now the market keeps moving in your direction. So you want to get back at them. You keep trading, thinking, “The next trade will make back all the money I lost so far, and that will hurt them.” Believe me: the market is ALWAYS stronger, and it will be YOU who gets the bloody nose.
3.) Boredom
There are some days when the ducks simply don’t line up. You’re watching the markets and it’s like watching paint dry: nothing moves. You wait…and wait…and wait…and suddenly you just get that “itch” to trade. You think, “If I don’t trade, I won’t make any money!” and you jump into a trade immediately. Of course, the trade isn’t according to your plan, and you end up with a loss.I have some news for you: if you don’t trade when there’s nothing to trade, then you won’t lose any money – guaranteed!If you want to succeed in trading, then you must understand the concept of taking only the “high-probability trades.” Less is more. Follow your plan!
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1 comment:
VERY NICE PRESENTED THE REALL THING THAT HAPPENS TO A NORMAL TRADER. I WISH FRIENDS GET SOME IDEA ABOUT HOW TO TRADE THE MARKET IF WANT TO GAIN.
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