Whether you are trading cryptocurrency, forex, or stocks, it is important to be aware of some of the common mistakes even the best traders make, to learn from them, and make sure you avoid making them. If you have been in the business of trading for even a small amount of time, then you know how costly a mistake can be, and unprofitable things can get, particularly with the ever-changing landscape and volatile nature of the markets. And while the risk and chances of loss are unavoidable, that is not to say that they cannot be mitigated. So here are some of the most common mistakes to avoid when trading online, to increase your chances of success and improve your profit margins.
Changing Your Trading Strategy
From the moment you start online trading, you need a clear plan and a proper trading strategy. Having a proper trading strategy will allow you to determine when to go long or short, and ensure that you have a strategy to refer to the moment you realize emotions are taking over. The problem with formulating a proper trading strategy is that it requires a high level of expertise and years of practice, and although you might employ the services of a financial expert, there is no substitute for self-knowledge.
The money you are making these investments with is yours, and accordingly you need to be aware of all parameters of the equation and make the decisions yours. While formulating your own trading strategy may take time and a few losses, it is very important that you stick to that strategy. It is normal to realize a few losses with your strategy, but your strategy is a result of your learning, so stick to it and eventually you will start making gains.
Diversifying with No Experience
As you become more proficient in online trading, your confidence grows, and that is great. But what is not great is when you do not realize that you are becoming overconfident, which can be pretty easy, particularly if you have been realizing a lot of gains. This is certainly true when you start to think about investing in other segments in the market.
Diversifying your portfolio and investing in other segments of the market as a result of overconfidence is a common mistake. You need to be aware that the reason you have been successful so far in your segment is that you carefully studied it and gained proper expertise in it. The same needs to be done in other market segments, before you enter, if you are to succeed.
Throwing Away Caution
Caution and a fear of loss are an important thing to have. They keep you alert, and in this case minimize monetary loss. It is common for enthusiasm and excitement to get a hold of even the best online traders, but the moment this happens, they are no longer the great traders they are. All plans, strategies, and rules of the game are forgotten, and bad decisions start being made, strictly because caution was thrown down the drain.
Of course, sooner or later, you start making serious losses, and it does not end too great. Caution must also be exercised, even when you are at the top of your game, and are playing by the rules of the game. Why? Because the game does not actually have any rules. Unexpected news, or a sudden market collapse might happen at any point in time, leading to major losses. The folks at Tradingonlineguide.com discuss how a stop-loss order can minimize your losses in the face of a volatile market. So it is important that you are always prepared with your stop-loss orders, and a proper back-up plan, to ensure you weather whatever comes your way.
Losing Sight of Important News
As you develop your trading strategies, you come to rely on technical or fundamentals, and attempt to make your trading moves based on quantifiable data. While it is important that you work on your trading strategies, to develop them into profitable one, you must never lose sight of the importance of the news. At any point in time, you need to be aware of and track news pieces that are relevant to the market segment you are trading in. That is not to say that you should trade the news, but rather acknowledge its importance and how it can sway prices, no matter what other indicators read.
Admitting You Were Wrong
Online trading is a business that is all about risk, meaning that avoiding a loss is close to impossible. What this really means is that whether you like it or not, you are going to make a mistake, and that is okay. What is not okay however, is sticking with that mistake and to the wrong decision you made. Admitting you were wrong, particularly to yourself, can be difficult. In online trading, this can be the difference between losing hundreds or losing thousands. When you make a trade, you need to know where your stop-loss is at. Do not let emotion overtake you. Just cut your losses and move on as fast as you can.
Forgetting About Volume
As an online trader, you need to be able to differentiate between data and information. For instance if the price of a stock goes up by 10%, well that looks great, but that is just data. When you couple that with the volume traded, then it becomes information. For example if the volume traded was only 5,000 shares, then you know it is not a strong move; it is just hype. The volume traded validates the price change, and being aware of both will equip you with the information you need to make a profitable trade.
The business of online trading is a difficult one. Traders with decades of knowledge and expertise are still susceptible to making major losses, what with the risky nature of trading. To get better at trading and ensure bigger profits, it is very important that you learn the “do’s” of the business. It is however equally important that you learn the “don’ts” as well. Make sure you avoid these common mistakes, to mitigate the risk involved in your trade and potentially reap the rewards.