Most Common Trading Mistakes
1. Trading Without a Plan or Journaling
Trading with a plan is one of the most important steps to becoming a profitable trader. Experienced traders will enter a trade with well-defined plan. They know exactly where they are going to enter and exit each trade, the correct position size of the trade and maximum they are willing to risk/lose on that trade.
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Novice traders might not have a trading plan in place before they enter a position. Regardless of whether they have a plan, they might be more inclined to wander from their plan than experienced traders. Beginners may deviate from the plan all together. For instance, going short after initially buying because the position started to go against them.
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In Order to be a successful trader one must have a trading plan in place before entering a trade and have the patients and discipline to stick to the plan throughout the trade.
Trading with a journal and tracking is also one of the factors that separates the winners from the losers. Dr. Alexander Elder said in his book "Trading For a Living" you can measure how successful a trader will be on how well he tracks his trades. Analysing your trades at the end of every week and month can prevent you from making the same mistakes and will allow you to better yourself and your trading.
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Free Trading Journal: Trading Journal
2. Not Setting a Stop Loss
Not using stop-loss is a major sign that you don't have a trading plan in place. Stop orders will limit your losses. If your position is going against you a stop-loss oder can automatically close you position if your losses reach a certain pre-defined amount, usually a percantage of your account balance.
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Tight stop losses usually mean that losses are limited before they become significant. Be that as it may, there is a chance that a stop order may fail to execute should the security suddenly gap lower or higher, this can happen is times of hightened volatility-as happened to many traders during the Flash Crash. That being said, the benefits of stop orders far outweigh the risk of stopping out at an unplanned price.
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Another common trading mistake is when a trader moves a stop order on a losing trade just before it can be executed because they think that the price trend will reverse in their favour.
3. Letting Losers Run
One of the defining characteristics of successful investors and traders is their ability to take a small loss quickly if a trade is not working out and move on to the next trade idea.
Unsuccessful traders, on the other hand, can become paralyzed if a trade goes against them. Rather than taking quick action to cap a loss, they may hold on to a losing position in the hope that the trade will eventually work out. A losing trade can tie up trading capital for a long time and may result in mounting losses and severe depletion of capital.