Financial markets are far from safe. Rather, they are quite dangerous, and for some even perilous. A lot of traders fail on their trading journey. How do you avoid following in their footsteps? By learning from these mistakes. This article is a list of the most common reasons for traders to fail. Read about them to enhance your knowledge and strategy.
Trading without a plan
You have to carve out your trading strategy before you enter the deal. When the deal is open it is already too late to develop a strategy as you are quite likely to act emotionally and irrationally.
Instead of trading based on your gut feeling, you could trade according to a well-defined plan. You may have heard that professional traders feel the market and sometimes make intuitive decisions (which is true). Suchlike behavior requires years of experience. In fact, most professional traders would never become successful should they have started according to their gut feeling from the very beginning.
Poor trading discipline
It is not only important to have a distinct trading strategy, it is also important to trade in accordance with one. Having a trading plan but failing to trade with it won’t help. Once you’ve determined entry and exit conditions, optimal investment amount and leverage, you have to play by your own rules.
Failing to adapt
Markets have an elusive and ever-changing nature. Ignoring this fact and failing to change the strategy you use to new market conditions can result in a failure. When one thing stops working it is wise to try something different instead of trying to do it over and over again. On the other hand, a trader should avoid changing his approach too often. Finding the right balance between the two can be tricky, yet is absolutely essential.
Having unrealistic expectations
Trading is not about getting rich fast. Trading is about hard work, education and small, yet steady gains and managing risks. The sooner you get rid of unrealistic expectations, the sooner you will find yourself in the position to make some real progress.
Poor risk management
It has been stated more than once (in this blog, as well) that risk management is arguably the most important aspect of trading. You, as a trader, first have to learn how to manage your risks before developing your trading strategies. The reason for that is simple: no one can trade when his account is sitting at 0. Please remember that high leverage is an additional risk factor.
Learnings through trial and error
Learnings through trial and error could be a good thing when trading on a demo account. Feel free to test all the necessary trading tricks, tactics and strategies when there is no real money at stake. You can learn from other people’s experience and professional literature before allocating your own funds to certain strategies.
When you know why other traders fail it is easier for you to understand these common mistakes and manage risk. Try to avoid six fallacies you’ve read about today to improve your trading strategies.
NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
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