In this new article, our trader Pablo takes a look at most common mistakes that prevent traders on their way to success. He also provides useful tips on tackling these mistakes. If you struggle as a trader, we highly believe that these useful tips can help you with your trading progress!
Not having a Trading Plan
Why do we need a trading plan to negotiate?
Think of trading or investment as if it were any other business.
If you were to start a business selling sandwiches, for example, you need a business plan that details research, product design, production, marketing, distribution, etc., until it reaches the customer.
It is no different in trading. You first need to develop a plan according to your rules or trading system that is as simple but detailed as possible.
This allows not to guess or operate based on sensations or impulses.
That is, it gives you the possibility of having that characteristic habit of successful traders: Discipline.
Develop a plan and be flexible to modify and improve it as you learn, and as market conditions change.
But the most important thing is to commit to follow the plan no matter what. As Robert Kiyosaki says, "investment is a plan, not a product or process".
Lack of discipline to continue with the plan.
You have already corrected the first error and created your Trading or Investment plan.
But how do you plan to succeed if you don't have the commitment and discipline to follow it?
Most people dream of being rich, but very few commit to doing so.
The commitment is to fulfil my goal or die trying. In other words, a person committed to success no longer postpones his dreams, removes resistance from doing things and starts where he is.
Martin Luther King told us "You don't have to see the whole staircase, just take the first step."
If you commit to carry out your plan and have the discipline to follow it, magically the resources and correct information to improve your plan will come to you and you will improve over time.
The point is that we can have all the right tools, the right mechanisms, the right systems and strategies, but what happens if we are not disciplined to follow and after a few days we abandon it.
Well, it is exactly a habit of unsuccessful people, not to finish what they started. If you can overcome and correct this error, you are much closer to being successful in trading and in all areas of your life.
Do not negotiate in favour of the trend
This is one of the biggest mistakes of those that are new to trading.
For example, a beginner sees that the Euro against the US Dollar has depreciated by a large percentage.
At that time they say to themselves that since it has already fallen a lot, it can no longer fall, and all you can do is climb for what I am going to buy.
This operation is very risky, just because something has gone up a lot, does not mean that it will fall, and just because something has fallen a lot and is cheap, does not necessarily mean that it will go up.
It's like swimming against the tide or crossing a street with most people going to the opposite side.
Mind you, it doesn't mean you can't make money by having an opposite opinion. Many professional traders earn a lot of money by negotiating market extremes and going against the trend, however, they use risk management techniques to obtain a better reward/risk ratio since the odds are against them.
For this reason, in the beginning, it is better to start negotiating with the odds in your favour or with the tendency to make it easier and more profitable trading.
Do not use the Stop Loss technique
By the time we enter the market, our money is already at risk.
How much? EVERYTHING.
The Stop Loss or Stop Stop technique is one of the simplest but most powerful features you have in your favour.
Suppose you have a $1000 account and enter (buy) 3 shares of APPLE - that is approximately $110 per share.
Your initial risk value is $330 and you would lose everything if the stock falls.
However, you can place an order in your broker that if the APPLE share falls below $100, it automatically closes all your positions.
In this scenario, your loss would be $10 per share or $30 per 3.
You have reduced your value at risk by 90%. Another benefit of Stop Loss is that it eliminates the emotions that prevent us from getting out of a losing position and letting it run. This is the biggest mistake most of the new traders make.
Determine your risk, adjust your Stop Loss and protect your account!