Common trading mistakes: part one
No trader gets it right every time. We all make occasional mistakes, and that's nothing to be ashamed of - in fact, it's often a good way to learn.
However, you can reduce your risk of blunders by being aware of the pitfalls that frequently catch out other traders. In this section we'll run through some of these common errors, so you can learn from the mistakes of others and steer clear of them yourself.
As Benjamin Franklin said, 'By failing to prepare, you are preparing to fail'. And in the world of trading such failure can cause significant financial pain, so it really does pay to do your homework before you venture into the markets.
- Use the host of resources available - books, courses, trading conferences, the internet - to keep yourself informed about the latest trading ideas and techniques
- Take your time to understand the markets that interest you, how they work and how they've been behaving
- Create a trading plan to suit your trading goals, your skills and knowledge and your feelings about risk
- Practise trading using a demo account, where you can get comfortable with using your trading platform and try out strategies in a safe environment
You may know of some experienced, successful traders who make it look easy. But unfortunately trading is not just a case of opening a position and waiting for the profits to roll in - a degree of skill and knowledge is essential.
Too many new traders rush in with misguided confidence and are punished for it by the markets. Don't be one of them.
Not following a plan
Suppose you needed to travel from Edinburgh to New York: would you just step out of the door and set off without researching your route or checking ticket availability? Without doing a little advance planning, you would be unlikely to arrive at your destination.
In the same way, heading into a trade without having a plan can get you into trouble.
In the 'Planning and risk management' course, we talked in detail about how to create a trading plan. Once you've done that, it's important to stick to the course you've plotted for yourself.
You may be tempted, every day, to ignore your trading plan and just stay in a little longer on this trade or go in heavy on that one. But if you've really taken the time to develop your trading plan then you should have faith in it being the best-suited approach for you.
Even the best trading plan remains only a guide, but the better the guide, and the better you can follow it, the better your chances of success in the long run.
- Make sure you have all the skills, knowledge and tools you need before you enter the markets
- Create a trading plan and stick to it - have faith in the strategy you've picked
Controlling emotions that hold you back4 min
Controlling emotions that entice you to trade4 min
Controlling emotions that cloud your judgment5 min
Developing an unbiased, positive approach4 min
Common trading mistakes: part one6 min
Common trading mistakes: part two5 min
Common trading mistakes: part three7 min