4 Things to Avoid When Trading

As a newbie to the world of trading, sometimes it’s difficult to know whether or not you’re making the right moves. Without the experience and practice of a professional trader, you are obviously going to stumble across some hardships and make countless mistakes.

Every professional trader has a past filled with confusion, missteps, and mistakes that taught them what they needed to learn in order to become the success they are today. However, you are at an advantage. Rather than experiencing years of mistakes and learning from these over an extended period of time, here are four of the most severe mistakes you need to avoid making within the market of trade.

1. Mishandling losses

A defining difference between successful traders and traders that simply wish to be successful can be seen in the way both handle losses. While a successful trader notes their losses and swiftly pulls their investment to pursue other promising possibilities, a trader that has not yet reached success is likely to cling onto their trade for dear life.

Traders with a lack of experience tend to stick with their trades till death do them part, waiting and hoping for profits that most likely will never come. Not only does this impede your capital from making money where money is to be made, but this dying trade is acting as a leech, sucking your capital dry.

2. Not knowing how to use stop-loss orders

Stop-loss orders don’t seem to be applied by trading beginners often, which may be a cause of their failure. Stop-loss orders are used on successful trades before they drop, in order to stop your capital from experiencing losses. There exists, of course, the risk that your trade will earn more post stop-loss order, but there also exists the chance that you will lose everything without pursuing a stop-loss order. Novices need to learn how to take advantage of these orders more often.

3. Letting your trading plan walk out the door

If you’ve already started trading but don’t have a plan drawn up that covers all of your goals as well as considering as many worst-case scenarios as possible, stop trading. Before you make the decision to go into trading, it is absolutely necessary to draw up a concise trading plan that will guide you through your career as a trader.

Specifically, your trading plan should cover entry and exit points, investment amounts, and largest losses you can deal with. Once you do come up with this plan, you stick with it at all costs. For this reason, consider your trading plan very carefully, because after it’s finalized, there’s no abandoning it.

4. Going with the flow

Some traders assume that if a majority of people are trading for a certain stock, it must mean that it will provide high returns and become a great success. This is where a trader’s inexperience begins to show. Going with the flow and following the crowd causes traders not only to spend too much trading for trending stocks, but it deters their view from cheaper stocks that could actually earn them more profit.

Even if you don’t feel secure enough with your trading abilities to go against the flow of a majority of traders in the market, it is advised that you at least give it a try. In order to grow as a trader and learn from your individual mistakes, you need to be the one making your own decisions regardless of what other traders are doing.