Article provided by FxPro, an industry-leading online broker regulated by the FCA
Frequently, many beginning traders think that there is nothing difficult in trading and all they need is to choose several favourite instruments, the leverage, and press "Sell"-"Buy" buttons. Here the trader is likely to make a mistake.
Mistake #1: "Buy low and sell high"
The best moments for enter and exit the trade looks obviously...оn the retrospective charts. However, reality is much more complicated. What seems like a good moment for reversal at first glance, very often turns out to be a small stop in the midst of the trend.
Advice: Oscillators (technical indicators) are helpful to determine enter/exit moments and to estimate the strength of the current price trend. This feature is available on trading platforms.
Mistake #2: Problems with recognizing mistakes
The following common error is related to overconfidence in trader's assessments of the situation. The market is changing, a new important circumstance could appear, but for newcomers it seems that they need only a little bit to stay calm and wait while loss disappeared and then there will be a reward.
Advice: Your technique and forecasts could be relevant, but traders should not use it as scenario for future. Even the largest investment banks and international organizations are changing their expectations and forecasts. There is nothing wrong with it: nowadays the world is difficult to predict. Probably it was always like this, but now it is more often told.
Mistake #3: Absence of a trading plan
The lack of a clear trading plan for traders at the beginning of their path is due to inexperience: the person just has not yet decided what is important and what is not. However, more experienced traders sometimes make the same mistake, justifying the desire to remain flexible in the transaction.
Advice: Determine the solid parameters for entering and exiting the trade and follow them as closely as possible. Depart from the plan is permissible except in periods of increased market volatility to close the position and reduce trade risks. In the long run, this tactic is able to bring good results, although at the first glance it may look overcautious.
Mistake #4: Overconfidence in the trading strategy
The reverse side of a good trading strategy is excessive confidence in it. After the trader has tested it on very long historical data and if it has successfully had worked out for several months before, it is rather difficult to take a critical look at its shortcomings. A series of losses at first glance seems only a black stripe, which is about to end.
Advice: A trader always needs to keep in mind the fact that the markets can change dramatically: the economy can enter next macroeconomic cycle phase; the policy or other economic conditions could have changed. Strategies should be time to time subjected by a critical review for relevance.
Mistake #5: Emotions
It is worth noting that emotions are an integral part of trading for most traders. They could bring a healthy excitement and a competitive spirit to those for whom trading. However, they have a reverse side as trader could fall in euphoria with profits and deep sorrow with loses.
Jesse Livermore said: "The human side of every person is the greatest enemy of the average investor or speculator." Greed and fear lead to mistakes.
Advice: Make your goals for the day and tune your trading strategy. They allow a trader to reduce a level of emotion and minimize the number of spontaneous decisions.
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Disclaimer: This material is considered a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments.
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