Monday, February 4, 2013

Top 6 BIGGEST mistakes you can make as a trader

The following trading tips are from my own experience as a trader. We all make mistakes and I made a few of them as well. Some big ones to tell you the truth. But hey, you'll learn from your mistakes right? I've compiled a list of mistakes that happened to me personally in the past. I hope you'll learn from them and if there's any ones that you think should be added to the list, feel free to comment;

Below are the top 3 biggest mistakes you can make as a trader listed, from bad to worse;


#6: BEING GREEDY

'Greed is good'; as I recall Gordon Gekko saying in the movie Wall Street. Interestingly enough it's one of the worst things you can do in trading; although it's very tempting sometimes to squeeze that extra buck out of it when the market trades in your favor, most of the time you end up losing or making less money than you could have. Stick to your trading plan! Exit or enter according to your plan. Don't be greedy!

#5: SCALPING

Scalping I think is by far the worst thing you can do when it comes to trading. Scalping is quickly entering and exiting trades; looking for highs and lows to rapidly make a buck. It's not only mentally exhausting, scalp trading won't last long - trust me, it's also highly unprofitable and very risky. Might as well gamble, higher probability to be profitable and without the headache.

#4: TRADING THE NEWS

Also known as following the crowd. News is noise. Noise that can interrupt your trading strategy and thus can cost you the reason why you're trading in the first place; money. It's better to be leader of the pack than to blindly follow the crowd. Never trade the news, keep it in mind but do not trade solely on the news alone. (the same goes for simply only trading on technical analysis.)

#3: NOT HAVING A TRADING PLAN

Trading without a trading plan is just like committing suicide. Get it over with already if you're that desperate, or don't trade at all. Might as well go to a casino to 'try your luck', your chances to become 'rich' are much higher there. A major benefit of having a trading plan is that you can analyze your trading strategy afterwards as well. If it goes wrong, you can go back and see why it went wrong, and make tweaks to your trading plan where necessary. It also prevents you entering or exiting a trade at the wrong time. Note that in your trading plan you should always write down the initial risk capital, as I like to call it; how much money are you willing to loose in case it doesn't go your way and always express this in your monetary unit (US dollars, Euro etc) not in pips.

#2: TRADING TOO MANY MARKETS AT ONCE

Do you really think you are the 'Jack of all trades?' Knowing how to trade a certain instrument doesn't mean you should do it. Understand your market! Know what you're trading and why it's trading the way it's trading now. Not being able to explain why certain things happen in the market means you're not doing your homework. If you are able to explain market movements, your probability trade will become (much) more successful! Don't put all your eggs in one basket either but diversify.

#1: THE BIGGEST MISTAKE OF ALL: EMOTIONAL TRADING!

Don't trade on emotions! We all are emo sometimes, we're human after all. But it's the biggest trading mistake to enter or exit a trade based on emotions. Hands down the worst! Don't do it! Sticking with company 'X' because you simply 'always trade company X', or sticking with one currency pair all the time will kill you! This also includes trying to take 'revenge' on the market after a failed trade. Getting upset after a failed trade; you're not a trader, but a wannabe trader and you won't last long in this business, trust me. How hard it may seem, just say; 'hmmm, that sucks, I'll go back to the drawing board to see where the trade went wrong and I'll try to make a profitable trade next time' is the right attitude. Quickly entering the market again to 'show who's boss' and trying to regain those lost profits is also a form of emotional trading and should be avoided like the plague.

Happy trading!

-John


Disclaimer:

All opinions expressed, trade recommendations/advice on this website are solely of John van der Munnik and are not affiliated with any investment firm or any other organization. You should not make an investment only based using this website VDM Trading for your trading needs without seeking help from your own financial advisor.