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What are some of the biggest traps you can fall into as a trader?
Trading is a
process that is different for every participant: a great deal of success
depends on personal qualities and strengths. And yet, a number of things are
universal – the similar challenges everyone goes through and the common traps
that at some point await all traders.
In this article, we have gathered the potential
killers of trading success as well as the recommendations on how to eliminate
them or turn the situation around in case you are already suffering.
#1: Being too lazy to test things
It can be
tempting to just start using a new trading strategy right away to bear monetary
fruits as soon as possible. However, launching into the unknown is not the best
idea. Practice makes perfect and it’s always better to test things first.
As a result, use the potential provided by demo
accounts to its most: test the services provided by your broker, test a new
strategy, work on your risk management and position sizing.
#2: Extreme emphasis on the result
A lot of traders
expect to see the mind-blowing amounts of profit literally in no time. Others
get fixated on the idea that every trade should be profitable.
We won’t argue
that trading should be to your benefit, that goes without saying. However,
obsession with rewards alone won’t do you any good. After all, the rewards
won’t achieve themselves.
All important
things – analysis, strategy, risk management – are the elements of the trading
process. So, while it’s absolutely necessary to have a goal (a reasonable one,
for sure), once the goal is set, you should throw all your strengths and
attention to the process of trading.
Learn from each trade you make – your own
experience of observing and dealing with the market is your most precious
asset. Focus on the key elements of trading mentioned above and try to improve
your skills in each of them.
#3: Lack of proper money and risk management
The reasons for
this misstep may be different: laziness that we have already mentioned before,
ignorance, the lack of patience. Bear in mind that professional trading is not
a game and that every time you put your money at stake, not just some abstract
numbers you see on the screen.
In addition, be always aware that by nature
people are inclined to underestimate probabilities of bad events. Accept the
idea that there will be losses and your job is to make sure that they don’t put
devour your deposit. Be prepared: don’t risk too much and use Stop Loss orders.
#4: Forgetting bigger timeframes
Some intraday
traders – beginners – perceive timeframes from daily and bigger as something
remote and unrelated to what they are doing. Yet, bigger timeframes show the
bigger picture.
Although
fractals we see on the smaller timeframes are the first to show a change in the
market, they may always be just ripples that don’t mean a new trend.
As a result, make sure that you consult large
timeframes on a regular basis to ensure that your short-term trades don’t clash
with some important long-term support/resistance levels.
#5: Constant hurry
Ask yourself a
question: are you a patient person? Do you have this urge to open a trading
order, no matter buy or sell, right after you have turned on your trading
software just for the sake of doing something?
Such a hurry to
start trading is quite common these days when the process of setting up a trade
is swift and easy. Another form of the illness is when a person sees a rapid
movement of the price and has a sudden panic attack, seized by the fear of
missing out (FOMO) a trade of a lifetime.
The problem is
that if you are in a hurry, you will probably cut yourself a lot of slack in
market analysis and get into something you shouldn’t have got into. The odds
are that by doing so you will forgo risk management.
In order to avoid such situations, try to
consciously monitor your psychological condition during every trade. Make it a
routine checkup: every time you feel that you are moving too fast, slam on the
brakes, take a deep breath and think some more.
#6: Not understanding the essence and logic of the market
Often enough
traders look at a chart but don’t really see it. Remember that the price action
is a result of the activity of all market participants or that a pullback comes
after every big move. It’s also worth noting that a lower high in an uptrend is
a worrying sign for bulls or that breakouts of important levels may be false.
Furthermore, candlesticks
and their patterns can tell you stories about what happened with the price;
that technical indicators don’t bring new information but are derived from the
price; that fundamental economic disparities shape the longer-term trends and
the market is driven by expectations in a greater deal than by events
themselves, etc.
To become better at reading the market, make
your forecasts for the instruments you do not trade and see how the situation
turns out. Watch the price’s reaction to economic releases. Apply every bit of
the knowledge you get to practice.
#7: Overanalzying
Regrettably,
there may just be too much of a good thing. You should always be able to see
the price chart below all the lines you have drawn and all the indicators you
have applied – no jokes!
To be honest,
it’s hard to see how you may need more than 3-4 indicators: there is little
point in applying indicators that have similar functions. In addition, a bigger
number of indicators will simply make a trading strategy bulky and
dysfunctional.
As a result, cut the excessive things and use
the remaining ones efficiently.
#8: Poor planning and organization
In some
endeavors, it pays off to be spontaneous. However, trading is rarely one of
them. It doesn’t mean that trading is not creative, but that it requires
disciplined execution on many levels.
Here we stress not only the necessity of a
trading plan with the technical details of your trades but also the need to
have a daily routine in place. Make sure you organize your activity carefully.
Assign defined periods of time to trading and make sure you stick to them.
Conclusion
Our most sincere
advice is for you to try and actually apply the recommended solutions. As it
often happens in trading, things listed above may seem like banality and easy
stuff.
Still, many
traders put off amending the situation and forget about the simple steps that
can make their trading life much better. What if a time to become a mindful
trader has finally come?
This
article was submitted by FBS.