You can make small mistakes in trading without it having too much effect on your account or your overall trading plan. There are however mistakes that could end up costing you the entire balance in your account or even your livelihood. If you are guilty of any of these then you need to ensure that it was a one-off. So let’s look at what some of these mistakes are and the consequences that can come with them.
Trading too Much
Otherwise known as over-trading, this is where you simply trade too many times. You need to ask yourself a question before putting on every single trade you do, is this a good trade? If you are certain that it is then you can trade it, but if you are placing a lot of trades, it is most likely that some of them are not, and if they are not, you should not be making the trade. When you place too many trades you are putting a lot of risk onto your account.
There are different reasons why you may be making too many trades, if you have just set up a new trading plan or strategy then you may be making the trades to test it out, but you should be doing this on a demo account. You should only be trading trades that are exactly in line with an already complete trading plan. You may also be trading because you are bored, do not do that, stick to your pan, and only trade when it is relevant, even if that ends up being just once a week.
Risking too Much
This can be done in a couple of different ways, primarily when we think about risking too much it is based around using lot sizes that are too large, f your strategy (as long as you have one) suggests that you should be making trades at the size of 0.05 lots, making trades at the size of 1 lot is not exactly the smartest idea you can come up with. More often than not, trading at sizes too large is a result of either trying to make up for previous losses or by giving in to greed in order to try and make more money. You can also risk too much by making too many trades which we have already outlined in the section above regarding making too many trades.
Thinking too Much
When doing most things in life, not thinking is normally the issue, but with trading, it can often be the opposite, if you decide to think about each trade too much, then this is where the issues can arise. Thinking too much can potentially self-sabotage your own trading strategy. Think about why you made that strategy, it was to make things simple, and to keep your account safe. So the rules that you set up with the strategy were put in place to ensure that you stick to them. Sticking to them keeps things on track, second-guessing them and thinking about the possible reasons why the trades may not work, or whether you should change something can only hinder the overall results.
Thinking too much can also cause delays, delays in your trade can cause you to miss those trading opportunities that you would have normally taken. Do not try to read into the markets too much, doing so also causes delays but may also cause you to start double guessing your trading strategies and current trades. Overthinking can also have an effect on current trades, causing you to take losses or profits too which will ultimately start to mess up the entire profit and reward ratio of the strategy that was created. So it is important that you trust the system that you are using and do not overthink the trades that you are making.
Gambling can be exciting, it can cause something that is boring to become quite exciting, however it has no place in trading. When we think about gambling in a trading sense, it is simply when we place a trade without doing the usual analysis or using our trading plan. We are simply guessing whether the markets will move up or down. The unfortunate thing about gambling is that it is often not just a one-off. If you win, it’s easy, let’s do another one, if you lose, you want that money back so let’s put on another one and win, it is a vicious cycle and something that you should do everything you can to avoid. Always stick to the rules of your trading plan and do not start to gamble without it.
Trading Based on Articles and Opinion Pieces
Opinion pieces and articles are just that, an opinion. A lot of them do not necessarily have the information or knowledge to back up their opinions, what is worse is that a lot of them are simply regurgitating information that they may have seen elsewhere. Be sure that you are doing your own analysis along with your trading plan is the best source of information that you can get.
Not Paying Attention to Economic News Events
Some news events do absolutely nothing to the markets, others however can have dramatic effects, if you are trading then you need to know what news events are coming up and how they may potentially affect the markets and your current open trades. Many accounts have been blown in the past due to people not knowing about upcoming news events or by people who have been trying to trade the news, which again is not a smart thing to do unless you really know what you are doing. If you have doubts about the effect that an upcoming news event is going to have, it would be advisable to not be trading at the time shortly before or after that news event.
Reading too Many Websites at Once
It’s a great idea to continue to try and learn, however, you need to be careful how you do it and you need to choose your sources carefully. How many websites should you read from? One or two at the most. As soon as you start looking at too many, you will begin to cloud the information that you are taking in, the more opinions and discrepancies that you come across the more confusing it can be. It is very easy to start to mix things up as there is so much information out there with very small variations in it. Once you have found a website that has information that suits you, and they provide it in an appropriate manner, stick with it, do not just between it and lots of other sites at once.
Not Continuing to Learn
Forex and trading is a constantly evolving business, there are new things being developed and new things being understood about the way it works. What works for you now, may not work in 6 months, when it stops working, what are you going to do? You need to be constantly learning and working out what you can do in different situations, keep learning, you will begin to learn new things that can help with your own trading plan and strategy and could help you to become more profitable now, and in the future.
Being overconfident can be a dangerous thing, it can cause you to make mistakes or to take risks that you probably should not be doing. Overconfidence normally comes from having a number of successful trades in a row, once you have this feeling of overconfidence the next trade may be made at a larger lot size or you may begin to put in additional trades that aren’t necessarily related or in line with your trading plan. If you are starting to feel this emotion, it is important that you step back and remind yourself why you are currently being successful, it is because of your trading plan, so continue to stick with it and do not take any additional risks.
So those are some of the worst mistakes that you can make when trading, are you guilty of any of them? They are very easy to fall into, most traders would have experienced at least one of them during their careers, what is important is that you are able to recognize if you are doing any of them so you can then begin to move away from them.