No trader gets it right every time.
But you can improve your chances by knowing what pitfalls to avoid.
Here are five mistakes to steer well clear of.
Technical analysis, advanced charting systems, automated algorithms - all can enhance your trading.
But blindly following a software program can often be a recipe for disaster.
Remember, these are just tools, not foolproof strategies.
It’s important to understand the underlying concepts behind the trends and patterns, before
placing any trades.
Timing is not an exact science, but inexperienced traders will often act at the wrong moment.
You can improve your timing by keeping a detailed trading log to track your previous mistakes,
using charts to help forecast scenarios and sticking to a clear trading plan to
stop you acting on impulse.
You may convince yourself a market can’t fall any further.
Yet one of the most dangerous misconceptions is thinking you can always turn running losses into profit.
Knowing when to cut your losses is a key skill to develop.
Look back at your trading log, refer to your trading plan, and work out how much you’re
prepared to lose before you trade.
Then place stop-losses to make sure you exit when planned.
When it comes to trading, there’s no such thing as a ‘winning streak’.
With the euphoria that comes with a big win, there’s a temptation to believe you’re on a roll.
But you should never let the excitement cloud your judgement.
Sit back, consider your trading strategy, and only open a new position if it fits with your plan.
The experienced trader should always be aware of what’s at stake.
To find the risk/reward ratio of any trade, compare the amount of money you could lose
to the potential reward. So if you’re risking £200, but you stand
to win £400, then the risk/reward ratio is 1:2.
What ratio you decide to go with depends on your risk appetite, but generally novice
traders should stick to low-risk, high-reward trades.
So remember, always keep these five mistakes in mind before placing your next trade.
And focus on trading with your head, not your heart.