Traders differ from investors in a simple way - they sell commodities far sooner and more frequently than investors do. Their short-term approach has plenty of pros and cons, but one thing that’s certain is that many underestimate the risk of being in the trading business and can lose their money quickly. One common mistakes being committed can be avoided if you apply some simple trading 101 - so let’s go back to basics.
1. Not sticking to the plan.
The reason why many long-term investors and smart traders always produce results year in and out is because they don’t stick to their plan with discipline. In fact, many don’t even have a proper plan - which is one of the reasons why the fail in the first place. Going into the market without having a plan to make the best trades possible in whatever industry you might have the best leads is a fast way to fail, any anyone with basic trading 101 knowhow is going to understand that. Beginner traders need to spend their time to understand exactly what their capital is, what types of trades are suitable for their capital as well as what target entry and exit points they’re targeting.
2. Following the crowd.
Blindly following the herd and investing in “hot” stocks can often result in a trader paying far too much on a trade that’s already started dropping in value because they heard it’s “hot right now.” Experienced traders know when to follow a trend and at which point a trend is getting over crowded, which is the perfect time to exit as supply and demand will meet and value will drop. The mentality of “the trend is your friend” holds true in many aspects, but if everyone’s following the trend
3.Not doing the homework.
Successful traders do their research, which is pretty common sense. A lot of newbie trainers who like to skip their trading 101 lessons can’t expect to achieve the same results - but knowledge of trading seasons, market timing and trading patterns are crucial to making profitable decisions. Often new traders will go into trades that seem attractive at first glance, but can turn into a loss quickly which could have been prevented with some proper research. Don’t let the urge to make a trade bait you into creating losses.
4. Trading Multiple Markets
Another common pitfall are new traders jumping from market to market. This is a viable option for experienced traders with years under their belts, but for new traders, they definitely should be sticking to one market and focus on mastering that one. Once they can turn over annual profits in that market and understand its nuances, then it’s a good time to expand to a second market. Too many new traders will jump ship after one bad trade and look for greener pastures without even understanding why their trade went negative in the first place.
5. Letting losses build up.
When a loss is building up, a good idea would be to cut losses and go look for a new opportunity. Inexperienced traders will freeze up once a trade goes south and won’t cut their losses quickly enough. They forget that they are traders, not investors - they don’t have the luxury sitting on a commodity for long enough for it to turn around and become profitable again. It’s better to take a quick loss and looking for a new win to offset said loss, instead of hoping that the loss will turn around. Sitting on a loser is going to end up tying up investment capital that could be invested in a winner instead.