Fred had just registered for driving lessons. He was to start on a Monday, the following week.
The first week he learnt about the control panel of a car.
The second week he would be moving on the road.
He wasn’t that excited because driving didn’t seem like a big deal to him. Everyone drives, how hard could it be.
That moment finally reached. He was at the back seat while his instructor was at the front seat instructing the driver on what to and what not to do. The driver was another student learning to drive too.
He told the student to park the car by the side, so Fred can go to the driver’s seat. The lady, whom is the student that was being instructed, went home since her lessons for the day were over.
Fred sat down at the driver’s seat. He took a deep breath. In his mind, he said to himself, ”this is it, time to display some skills”.
A Skill he hadn’t acquired yet. His instructor told him to start the car. Fred started it. He told him to move the car. Fred moved forward. The instructor said to Fred: number 1 mistake, you failed to indicate with the light, which could have lead to an accident. You were taught this in your first week.
Fred was like “oh shit, I forgot”. Fred asked his instructor “why didn’t you tell me or remind me to indicate.” The instructor replied making such mistake will help you not to forget again. I just wanted to make sure you always remember.
Mistakes can be corrected and it is something one should always learn from so that we become better at what we do.
Here are 6 mistakes traders usually make trading the financial markets.
- Improper analysis and research
This mistake is common amongst beginner traders. Improper analysis and minimal research can hurt your trading account. I did make this mistake myself. I didn’t know how to analyze charts properly.
I made trading decisions solely on sizes and colors of candlesticks. As I practiced, I improved till I was able to make proper market analysis and profit.
- No trading plan
If you are to build a house and you don’t have a plan or your plan is not well detailed or calculated to carry out the construction to finishing. I doubt you will be successful in handling the project to finishing. So as it is in trading. If you don’t have a proven and tested out trading plan. You will loose all your money in the long run.
Brokers offer leverage to traders which gives the trader an opportunity to increase the size of his trade position. Leverage is often referred to as a doubled edge sword because it can make you profit big and also lose big.
So it is very important to be careful with the use of leverage when trading. To avoid over-leveraging you need to do position sizing before you open any trade.
- Bad risk to reward ratio
Can you stake a bet with $10 to win $10. I don’t think you can. Rather staking $10 to win $20 and above is good. Before you open a trade aim for a risk to reward ratio of 1:2 or 1:3. The idea is that the reward should be more than two times the risk.
- Neglecting a stop loss
The most important requirement in managing your risk when trading is a stop loss. Traders have blown there trading account neglecting the importance of a stop loss. A stop loss is used to protect a trader from further losses. Think of it as the cost of doing business.
- No trading journal
Nobody becomes an expert in a day. As you trade there is room for improvement. A good way to work on your trading and improve is by reviewing your old trades and find out what you did right or wrong. What made you win and what made you lose. You should record your trades. What you bought or sold. What time you traded it. What was the risk metrics like.