There are few pursuits that fuel human emotion as significantly as the prospect of trading and making money on the stock market. But more often than not, the reality of losing money can also become a quick deterrent for the novice or emerging trader. Even experienced traders take years to be able to control their emotions and execute trading strategy without making too many mistakes.
The 6 most common mistakes traders make while trading include:
- Being too emotional about money
The Inability of traders to disconnect their emotional self from the prospect of losing large chunks of money or becoming overtly confident when making significant gains often results in poor overall trading performance. Trading in small quantities initially and allowing them to grow over a period of time can help controlling emotions to a large extent, experts say.
- Changing your trading strategy after mounting off losses from few trades
Even the best traders make losses regularly. This, however, does not mean that the trading strategy must not be consistently followed for a decent time period to test it appropriately. Each trade must be treated as independent of the other with past results not affecting the next trade so that the strategy can be ultimately successful.
- Inappropriate stop loss strategy
Traders often forget to apply adequate stop loss, widening it or cancelling it without logic. Stop losses must be placed according to what the market is telling you, rather than what your profit goal is. The stock’s behaviour or volatility must dictate where and how much the stop loss should be.
- No record keeping
Just like keeping a track for your own budgets and managing your personal finances, trading requires you to constantly keep a record of the day’s trade so as to be able to review them periodically for post trade analysis. This will help identify patterns that need changing and help you learn from past mistakes.
- Not using the right tools
Many traders blindly follow the practice of relying on software’s available online and others that provide charts, tables and data about stocks. Blindly following any of the publicly available tools can do more harm than good. Thus, a reliable trading software which also helps you understand some facets of what the charts mean and how you can use them better will go a long way in making trading successful.
- Anticipating large profits
Most traders do not want to acknowledge that a trade can turn against them. Ignoring the signals that the market gives, they instead increase their leverage in the hopes of making profit later on in the same trade. It is crucial to enter the market with neutral expectations and emotions and letting the market dictate the quantum of profits that the trader can make.
It is important not to get lulled into thinking successful trading is a little more than a bunch of tips from your friend or buying & selling known stock ticker symbols. Successful traders constantly study their craft, learning from mistakes with a disciplined and consistent approach.