The following are 10 most common but deadly Trading Mistakes, which
traders should avoid at all costs. Anyone of them can literally
destroy one's financial dreams and goals!
1. Trading for excitement & thrill Not for profits.
Many traders consider stock market as casino and trade for thrill and
fun only. As soon as one has a losing trade, he wants to quickly make
back the lost money. He thinks about the other things he could have
done with the money, regret taking the trade and want to recover as
quickly as possible. This in turn leads to further mistakes. Be
patient and wait for the next high probability opportunity. Don't rush
back in.
2. Trading with a high ego.
Many individuals who have remained highly successful in other business
ventures have failed miserably in trading game. Because they have a
fairly big ego and thought they couldn't fail. Their egos become their
downfall because they can not except that they would be wrong and
refuse to get out of bad trades. Once again, whoever or wherever has
any one come from does not concern the markets. All the charm, powers
of persuasion, number of degrees & diplomas of business management on
the wall or business savvy will not budge the market when you are
wrong.
3. Three 4-letter words that will kill you! HOPE--WISH--FEAR--PRAY
If you ever find yourself doing one or more of the above while in a
trade then you are in big trouble! Markets has own system of moving up
& down. All the hoping, wishing and praying or being fearful in the
world is not going to turn a losing trade into a winning one. When you
are wrong just use a simple 4-letter word to correct the situation-GET
OUT!
4. Trading with money you can't afford to lose.
One of the greatest obstacles to successful trading is using money
that you really can't afford to lose. Examples of this would be money
that is supposed to be used in any other business, money to be paid
for college/school fee, trading with borrowed money etc. Ultimately
what happens is that when someone knows in the back of their mind that
they are risking the money they can not afford to lose, they trade out
of fear and emotion versus logic and no emotion. If you are in this
situation It is highly recommend that you stop trading until you earn
enough to put into an account that you truly can afford to lose
without causing major financial setbacks.
5. No Trading Plan
If you consider yourself a trader, ask yourself these questions: Do I
have a set of rules that tell me what to buy, when to buy and how much
to buy, not just for the next trade, but for the next 10 trades?
Before I enter a trade, do I know when I will take profits? Do I know
when I will get out if I am wrong? These questions form the first part
of a trading strategy. There simply cannot be any expectation of
success if we can't answer these questions clearly and concisely.
6. Spending profits before you make them.
Nothing is more exciting then getting into a trade that blasts off and
puts you into a highly profitable situation. This can cause major
problems however, because this type of trade puts you in a highly
euphoric state and leads to daydreaming about the huge profits still
to come. The real problem occurs as you get caught up in the daydream
and expectations. This causes you to not be prepared to get out as the
market reverses and wipes off all your profits because you have
convinced yourself of the eventual outcome and will deny the reality
of the situation. The simple remedy for this is to know where and how
you will take profits once you enter the trade.
7. Not Cutting Losses or letting Profits run
One of the most common mistakes made by traders is that they let their
losses grow too large. Nobody likes to take a loss, but failing to
take a small loss early will often result in being forced to take a
large loss later. A great trader is not someone who has never had a
loss. Great traders have made many losses. But what makes them great
is their ability to recover quickly from a string of losses. Every
trader needs to develop a method for getting out of losing trades
quickly. Research and learn to apply the best methods for placing
protective stoploss orders. The only way to recover from many (small)
losing trades is to make sure the winning trades are much larger.
After a series of losing trades, it becomes difficult to hold a
winning trade because we fear that it will also turn into a loss. Let
your profitable trades run. Give them room to move and give them time
to move.
8. Not Sticking to your plans & Changing strategies during market
hours
If you find yourself changing your strategy during the day while the
markets are still open, be mindful of the fact that you are likely to
be subject to emotional reactions of fear and greed. With rare
exception, the most prudent thing to do is to plan your trading
strategy before the market opens and then strictly stick to it during
trading hours.
9. Not knowing how to get out of a losing trade.
It's amazing that most of the traders don't have any clear escape plan
for getting out of a bad trade. Once again they hope, pray wish and
rationalize their position. It must be kept in mind that market does
not care what you think. It does what it does and when you are wrong
you are wrong! The easiest way to keep a bad trade from going really
bad is to determine before you get in, where you will get out.
10. Falling in love with a stock (Just Flirt).
Many traders get fascinated by just a stock or two and look for
opportunities to trade in those stocks only ignoring the other
profitable trading opportunities. It is because they have simply
fallen in love with a stock to trade with. Such tendencies can be
suicidal as for as trading is concerned. It may cost any one dearly.
source:Gaurav S Mehta
