What are some of the biggest traps you can fall into as a trader?
Trading is a process that is different for every participant: a great deal of success depends on personal qualities and strengths. And yet, a number of things are universal – the similar challenges everyone goes through and the common traps that at some point await all traders.
In this article, we have gathered the potential killers of trading success as well as the recommendations on how to eliminate them or turn the situation around in case you are already suffering.
#1: Being too lazy to test things
It can be tempting to just start using a new trading strategy right away to bear monetary fruits as soon as possible. However, launching into the unknown is not the best idea. Practice makes perfect and it’s always better to test things first.
As a result, use the potential provided by demo accounts to its most: test the services provided by your broker, test a new strategy, work on your risk management and position sizing.
#2: Extreme emphasis on the result
A lot of traders expect to see the mind-blowing amounts of profit literally in no time. Others get fixated on the idea that every trade should be profitable.
We won’t argue that trading should be to your benefit, that goes without saying. However, obsession with rewards alone won’t do you any good. After all, the rewards won’t achieve themselves.
All important things – analysis, strategy, risk management – are the elements of the trading process. So, while it’s absolutely necessary to have a goal (a reasonable one, for sure), once the goal is set, you should throw all your strengths and attention to the process of trading.
Learn from each trade you make – your own experience of observing and dealing with the market is your most precious asset. Focus on the key elements of trading mentioned above and try to improve your skills in each of them.
#3: Lack of proper money and risk management
The reasons for this misstep may be different: laziness that we have already mentioned before, ignorance, the lack of patience. Bear in mind that professional trading is not a game and that every time you put your money at stake, not just some abstract numbers you see on the screen.
In addition, be always aware that by nature people are inclined to underestimate probabilities of bad events. Accept the idea that there will be losses and your job is to make sure that they don’t put devour your deposit. Be prepared: don’t risk too much and use Stop Loss orders.
#4: Forgetting bigger timeframes
Some intraday traders – beginners – perceive timeframes from daily and bigger as something remote and unrelated to what they are doing. Yet, bigger timeframes show the bigger picture.
Although fractals we see on the smaller timeframes are the first to show a change in the market, they may always be just ripples that don’t mean a new trend.
As a result, make sure that you consult large timeframes on a regular basis to ensure that your short-term trades don’t clash with some important long-term support/resistance levels.
#5: Constant hurry
Ask yourself a question: are you a patient person? Do you have this urge to open a trading order, no matter buy or sell, right after you have turned on your trading software just for the sake of doing something?
Such a hurry to start trading is quite common these days when the process of setting up a trade is swift and easy. Another form of the illness is when a person sees a rapid movement of the price and has a sudden panic attack, seized by the fear of missing out (FOMO) a trade of a lifetime.
The problem is that if you are in a hurry, you will probably cut yourself a lot of slack in market analysis and get into something you shouldn’t have got into. The odds are that by doing so you will forgo risk management.
In order to avoid such situations, try to consciously monitor your psychological condition during every trade. Make it a routine checkup: every time you feel that you are moving too fast, slam on the brakes, take a deep breath and think some more.
#6: Not understanding the essence and logic of the market
Often enough traders look at a chart but don’t really see it. Remember that the price action is a result of the activity of all market participants or that a pullback comes after every big move. It’s also worth noting that a lower high in an uptrend is a worrying sign for bulls or that breakouts of important levels may be false.
Furthermore, candlesticks and their patterns can tell you stories about what happened with the price; that technical indicators don’t bring new information but are derived from the price; that fundamental economic disparities shape the longer-term trends and the market is driven by expectations in a greater deal than by events themselves, etc.
To become better at reading the market, make your forecasts for the instruments you do not trade and see how the situation turns out. Watch the price’s reaction to economic releases. Apply every bit of the knowledge you get to practice.
Regrettably, there may just be too much of a good thing. You should always be able to see the price chart below all the lines you have drawn and all the indicators you have applied – no jokes!
To be honest, it’s hard to see how you may need more than 3-4 indicators: there is little point in applying indicators that have similar functions. In addition, a bigger number of indicators will simply make a trading strategy bulky and dysfunctional.
As a result, cut the excessive things and use the remaining ones efficiently.
#8: Poor planning and organization
In some endeavors, it pays off to be spontaneous. However, trading is rarely one of them. It doesn’t mean that trading is not creative, but that it requires disciplined execution on many levels.
Here we stress not only the necessity of a trading plan with the technical details of your trades but also the need to have a daily routine in place. Make sure you organize your activity carefully. Assign defined periods of time to trading and make sure you stick to them.
Our most sincere advice is for you to try and actually apply the recommended solutions. As it often happens in trading, things listed above may seem like banality and easy stuff.
Still, many traders put off amending the situation and forget about the simple steps that can make their trading life much better. What if a time to become a mindful trader has finally come?
This article was submitted by FBS.
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