Trading on the financial markets has never been more accessible. However, it’s by no means a guaranteed money maker and it requires a dedicated approach to result in success.
You’ll need that mentality from the outset before you even get started with your first trade. Without having a sufficient level of awareness, you could fall into one of the common trading traps.
To help you on your way, we’ve taken a look at five of them and provided some tips on how you can stay on the right track.
- Overtrading
It’s easy to fall into a cycle of exiting positions to open new ones, but making too many trades can harm your chances of turning a profit. This is because excessive trades are usually a result of emotion or impulsiveness.
Before you enter the markets, be sure to formulate a thorough trading plan. This can help you steer clear of making impulsive decisions, but you’ll need to have a high level of emotional intelligence as well.
- Ignoring risk management principles
Risk is inherent in trading, so it’s key to have some strategies in place for managing it. Failing to do so only makes every trade you make even more risky!
Ensure your portfolio is diversified sufficiently so that any change in market conditions does not affect all your investments in the same way. You can also use stop-loss and take-profit orders to automatically exit positions when losses or profits reach pre-determined levels.
- Chasing losses
As soon as you make a loss, it can be easy to feel like you’re under pressure to recoup those funds as quickly as possible. However, this can lead you to make riskier trades that offer increased returns. Losses are going to be hard to avoid, so try to put them behind you as quickly as possible. But you should take any lessons learned and incorporate them into your trading plan.
- Losing discipline
Trading requires a high degree of discipline – losing that could result in you making impulsive trades or exiting positions prematurely. You need to be able to take the emotion out of your decisions and wait for high-quality trading opportunities. Deviate from the plan and you could be left to rue your choices.
- Failing to adapt
The markets are constantly evolving, but using a trusted trading platform like Tradu gives you access to a whole host of live technical indicators that make it easier to know when – and how – to change your strategy.
If you don’t conduct sufficient fundamental and technical analysis, you won’t know when it’s a good idea to switch up your approach. Changing market trends, increased volatility, and wider economic news are all worth bearing in mind.
