Errors are part of trading. Every trader makes them. But the most successful traders in the world—the ones who make huge profits every year—are the ones who make the least number of mistakes.
The following is a listing of ten common trading mistakes. You’ll raise your likelihood of making more winning trades and enlarge your knowledge of the futures and options markets once you’ve learned to prevent these blunders.
ERROR No. 1: FOLLOWING THE CROWD
That statement virtually never applies to trading although it’s been said there’s safety in numbers. Successful traders know that it’s better to “lead the pack” than it is to blindly “follow the herd.” Because the biggest profits are made before the crowd has the opportunity to respond by catching moves, it’s significant that you just form your own views and then act on them with complete trust.
ERROR No. 2: OVERRULING YOUR POSITION
If your position isn’t right, prevent the temptation of making a 180-degree turn. Instead, move out and give your trading a rest before taking another position. Ignore this advice, and you run the risk of being whipsawed—losing as the market moves against you, subsequently losing more when the market goes and turns against you again.
ERROR No. 3: ATTEMPTING TO PICK TOPS AND BOTTOMS
The smartest traders consistently allow the market price action prove bottom or a top continues to be formed before taking an active position. Trying to pinpoint bottoms and tops is a risky company where the possible gain is outweighed by the possibility of taking a loss far. By waiting for a certain high or low to seem and exercising patience, you’ll raise your odds for making a profit while reducing pressure and your risk.
ERROR No. 4: LOSING YOUR COOL
The most successful traders possess personalities that enable them to keep their emotions in check, even when they’re wrong about their place. By staying focused at all times, you’ll make trading decisions that are more intelligent and avoid making trades predicated on rage or revenge. You likely will not make a very good trader if you have trouble controlling your emotions.
ERROR No. 5: WAITING TOO MUCH TIME TO “PULL THE TRIGGER”
Procrastinators are bad traders. Being indecisive or overly cautious can be almost as destructive to your own trading results although one should never act on gut instinct alone. The best traders are the ones who can react mechanically and instantly to what they find in the market. Individuals who do not have the guts and confidence to act on their judgement are better off investing their money in something else.
ERROR No. 6: LETTING LOSSES RUN
Don’t hesitate to acknowledge defeat. Take your lumps when you make a mistake, swallow your pride and continue on to the next business. Before you make a trade, determine where you need to get out if the market goes against you and then stick to your own strategy. Even seasoned traders occasionally hold losses for too long, hoping the market will turn in their favor. Most times it’s going to continue moving against them, and they’ll end up losing more.
ERROR No. 7: AVERTING STOP ORDERS
Placing stop orders is one of the easiest ways to protect yourself against taking a loss that is disastrous. Some trading specialists recommend you use them all the time although putting stop orders too tight can put you out of the marketplace immediately. Using stops is discipline that is simple, but remember to use discretion when using them. When set too tightly, stops can take you out of the action before the marketplace has made a substantial move.
ERROR No. 8: BEING GREEDY
It’s one of the first things every beginning trader learns: let profits run. But how can you determine how far to permit them to run? When a trade goes in your favor and you made a fine profit, it’s sometimes recommended to get the money and run. One of the biggest mistakes some traders make is staying in the marketplace for too long hoping for a windfall which will make them loaded all at one time. Of all the emotions that can affect trading results, greed is the most destructive.
ERROR No. 9: TRADING A LOT OF MARKETS AT ONCE
In futures, people who aspire to be a “Jack of all trades” generally end up being a “master of none.” If you spread yourself too thin by trying to trade too many different markets at the same time, you won’t have the advice and “feel” you need to make great choices. Most skilled traders recommend that you just restrict your trading to a couple of marketplaces. Should you choose to trade many different futures, it’s finest to trade groups that move in regard to one another.
ERROR No. 10: NOT DOING YOUR ASSIGNMENTS
Although it can be enormously rewarding, trading also is demanding. Anyone who tells you different has’t been trading for very long. The best traders are those who have made a commitment to do what it takes to be a success. They’re willing to examine graphs or learn new trading processes so they’re consistently prepared for what the marketplace throws their way. You’ve taken your first step toward trading success, once you’ve made that dedication yourself.