The road to success is thorny and full of obstacles. At that, we are the ones who create most of them when we opt for a counter-productive behaviour model. This material covers the most common mistakes people make at exchanges with no speculator immune to them. As the saying goes, you should know your enemy by sight, that’s why we suggest that you read this article carefully and take a fresh look at your trading. You will probably see it in a different light.
LACK OF A TRADINY SYSTEM
The market is chaos while a trading system is a way to streamline it, a kind of the trader’s guide or shining beacon. It helps to correctly assess the price behaviour and find the right way at night. That’s why going to the market without a clear-cut plan is akin to suicide.
A quality trading system should have the following features:
- Conditions to enter and terminate transactions;
- Rules for stop loss positioning;
- Risk management information: maximum risk per transaction, permissible transaction number per day, loss limits, etc.;
- Data on traded assets;
- Rules for working with timeframes;
- Trading hours.
Obviously, it is not enough to have a trading system, it is essential to consistently follow it. That’s why your state of mind and maintaining stable moods in trading is very important for successful trading. Before you design a trading system, you need to carefully review all these matters — this will help to spare your nerves and money in future.
TRADING AGAINST THE TREND
Every person is special and a healthy degree of non-conformism may be very useful, but I’d like to forewarn you — debates with the market are an exercise in futility. Very speculator dreams to buy at the lowest price and sell at the highest, so he seeks to find a market reversal and work against the trend.
This eventually leads to major draw downs and may even result in zeroing of one’s account. Trends always last longer than we expect and instant reversals are very far in between. As a rule, reversals are preceded by drawn-out flats as well as accumulation and distribution of capital. That’s why one should think twice before starting to move against the current trend.
Averaging is the situation where a trader in a losing position decides to transact one more deal and buys an asset, against which the price cannot move any more, in his opinion, and the market is just at the point of moving in the right direction. It seems that adding to the bad position can take the speculator out of the excess, but, as a rule, events take quite a different turn.
Averaging is a bad joke that our brains play with us. When we are taking a decision it seems the right one to us and it is only later that we realise how wrong it was. One can remedy this by better discipline, stringent self-control and saying ‘no’ to emotion-driven steps on the exchange.
TRADING AT THE MARKET OPENING
In the opening jour, the market may demonstrate a strong sharp movement in one direction with the support and the resistance levels often broken at such moments. Obviously many people watching such activity of the instrument are eager to open a transaction.
And it is a big mistake, as seasoned traders are well aware that the market is very chaotic during the first hour and the movements within this time frame are often deceptive. Price quotations often return to their original levels to the disappointment of impatient speculator losers.
ADVICE AND RUMORS
A beginner trader’s progress may also be severely hampered by a consistent following of the broker’s advice and too much reading of economic news.
However good your adviser is, it is always better to rely on yourself and devote some time to a careful study of the market and enhancing your own market analysis system. Trading is a one-man type of business and one can generate a stable income only through self-improvement by putting somebody’s intrusive opinion aside.