Another week has gone by but hopefully you were able to extract more pips out of the market than it took from you. That’s the secret to trading because no trader is 100% profitable but has t0 be profitable on average to survive the trading ‘jungle’!!
So what are some of the big mistakes that inexperienced traders make? Here’s a few.
1) Not using a stop loss
There is a feature called Stop-loss that almost every broker offers. Stop-Loss is one of the most essential risk management features of trading and helps control your losses.
Let’s assume that you are trading EUR/USD currency pair in the market. The price of the pair keeps fluctuating ever second but you are unable to constantly monitor the price, so what do you do?
Let’s say that the price is 1.2030 and you have a feeling that the price will go up to 1.2070. To reach 1.2070 it can take hours or it can take seconds, it entirely depends on the market and the volatility of the market.
So, if your target price is 1.2070 then use the Take-profit order to set your target price at 1.2070. Now the next things you have to do is determine how much loss you can handle, so you choose a limit. Let’s say your limit is 1.2010, you can set a Stop-Loss at this price.
The function of the Stop-Loss is automatically cut off your trade if the price reaches either the target price or has reached the maximum limit for loss you can take.
In the example we used, if you don’t set your loss limit at 1.2010 and choose only target price then you could lose so much more than your initial investment if the market goes against your position.
So always ensure you use Stop-Loss to control losses and achieve targets.
2) Adding into a losing position.
Have you ever tried to add more money to a losing bet so you can end up earning a lot if all your bets are right?
For example, you are betting on the fact that the EURUSD price will reach 1.4100 so you buy one lot EURUSD trade at 1.4000, but market goes down 50 pips, and you add another mini lot at 1.3950.
Even though the market is going down and down, you are still betting against the market and incurring more losses hoping that you would recover and double your profits. But if the trade goes wrong, you will be liable to pay heavy losses for both orders that has the possibility of sweeping your account clean.
This is not sports gambling where you bet more on a losing team more and more expecting them to win.
3) Not having a trading plan
Having a plan is the starting point for every investor/trader. You need to set goals and establish your strategy going forward. Especially when money in involved, your plan needs to be as fool proof as possible.
There are so many commodities and instruments available in the market, you will not be able to trade in all. If you try to trade in all then you might as well say goodbye to your money.
An advice which is given by experienced traders to new traders is to have a good idea about what is it that they exactly wish to do and what is their ultimate goal.
If you are going to trade in the currency market, then you need to choose maybe 2 or even 3 pairs that you will monitor continuously and only trade in those currencies.
Have a weekly or monthly target that you wish to achieve, beyond that you need to stop trading
Finally you should be aware that more than 75% traders lose their money while trading, so you should not trade if you don’t have the required experience, even experienced traders know that the market is uncertain & profits are not assured.
Catch you next time
T & T