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Five New Trader Pitfalls You
Can Avoid
So you want to trade, eh? Or have you already started? What
drew you to it? Was it the huge profit potential? Maybe it was
the excitement. Or perhaps you love the challenge of solving a
big, multi-dimensional puzzle. Whatever the case, there's
certainly a number of things that make trading the financial
markets worthwhile. At the same time, however, there are some
huge obstacles along the path to profits and success. This
article discusses five ways to avoid trouble in the
markets. They will help protect your capital and increase your
chances of success. Ready? Let's jump right in!
#1 Avoid Errors in Order Entry!
The quickest way to lose money in the markets is to make
mistakes when you place your orders. Fortunately, this is
something very easy to fix. PAY ATTENTION! It's as
simple as that. Every trade entry system you could use has
some kind of order confirmation mechanism. Take the extra two
seconds and check to make sure everything is correct. I can
assure you this will save you money.
#2 Use Only Risk Capital!
New traders often get so caught up in the excitement and
anticipation of trading that they let common sense go on
holiday and trade with money they have no business putting at
risk. Any money you put in to the markets must be risk
capital, money you can afford to lose and not impact your
basic financial situation. It's hard enough to be successful
as a fledgling trader. You do not want the added pressure of
having to make money and/or not being able to afford losing
it.
#3 Start With Enough Capital!
It takes money to make money. You've heard that often enough.
Accounts that are too small can be a major hindrance to
trading success. They suffer from transactions costs that are
proportionally higher than is the case for larger accounts,
which hinders returns. They also restrict the number of
positions you can have at one time, which means you cannot
always take good trades that come along and you may not be
able to diversify as you should.
#4 Trade Small!
When in doubt, put less money at risk. There is no more swift
way to lose huge chunks of money than to trade too big. Your
trading size should be determined by your account size based
on the risk being taken. If you are risking an amount of your
account that potentially puts your long-term ability to keep
trading in question, your position is too big. If this means
you cannot trade certain instruments, find something else.
#5 Avoid Trading Too Often!
Trading can be fun, exciting, and profitable. It is also an
intermittent reward system, like gambling. That means it's
easy to get hooked and in a dangerous cycle. The feeling you
have after a winning trade will make you want to do it again.
This can lead to sloppy trading. Some traders do not make any
additional trades the same day as they close out a position.
That helps get some time and space to ensure good
decision-making based on their system, not their emotions.
Do whatever you must to ensure you always trade in control.
New traders are prone to mistakes as they learn how to be
successful. If you take the advice of this article, you should
be able to prevent unnecessarily losing money because of
things you could have avoided. Learn from the mistakes of
others. It will make you more successful in the long run and
make the path you take a bit smoother.
The Essentials of Trading
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