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By Alana Downer
Special to the Financial Independence Hub
With the ever-increasing popularity in trading, be it stocks, Forex or cryptocurrency, more and more people are becoming involved. Some are getting rich while others find themselves learning the hard way. Of course, beginner mistakes are almost inevitable when a new trader enters the market, but with some research and careful planning, some mistakes can easily be avoided. Here are seven of the most common trading mistakes you should recognise and avoid in 2018.
1.) Catch a falling knife
As a new trader, a common mistake is thinking that a dip has run its course. A common mentality, especially in crypto trading is to “buy the dip,” however just because an asset is cheap, be it stock, a forex trade or cryptocurrency, doesn’t mean it can’t get cheaper. Many people buy in, anticipating a reversal, only to see the price drop further.
It’s much better to have a “price confirmation” approach, where you wait for the market to reverse before you enter. To do this effectively, you need something that can be objectively defined such as a price moving above an average or the completion of a head and shoulder pattern.
2.) Holding on to losing trades
Another popular crypto mentality is to “Hodl”, which is simply a misspelling of hold. This isn’t exclusive to crypto, however, and most new traders have likely lost money this way. A trade going against you, especially as a new trader, never feels good and instead of getting rid of it, as you may have planned, you hold on to it, hoping it will reverse.
One simple tactic to avoid hanging on to a losing trade is to ask yourself “would I enter this trade today, at this level?” If the answer is no, it’s probably best to get rid of it.
3.) Listening to hot tips or FUD
The internet, your friends and your family may be full of advice and “hot tips.” Trade recommendations for all markets can be found everywhere. The rumours might be right, or they might be horribly wrong but it’s important to remember they’re just rumours. Do your own research, and decide if it’s something you agree with. At the end of the day you’re trading with your own money, so your choices need to be your own.
Similarly, there can be a lot of fear, uncertainty and doubt (FUD) floating around in today’s climate of viral and fake news. Again, do your own research and learn as much as you can about any recommendations you are following.
4.) Taking uncomfortable risks
Trading is all about taking risks, but it’s the type of risks you take that set you apart. Risks should be well researched, and calculated. If you make a trade that leaves you feeling nervous or uncomfortable, something is wrong. Maybe you’re trading with too much money, or your position involves too much risk.
Finding quality, actionable trading strategies, like the coaches at Learn to Trade teach can help you make calculated trades with which you’re re comfortable. Other things you can do is trade on a demo, trade with less money, or complete more research until you are confident.
5.) Having poor profit and loss goals
Undoubtedly, your profit and loss is important, since it’s what drives your decisions. However, new traders can make the mistake of placing too much emphasis on their profit and losses rather than making thoughtful stop-loss levels and profit goals. This can see new traders holding on to losing trades for too long, or selling trades to early.
Focusing on your research and becoming familiar with trends and strategies, rather than focusing solely on your profit and loss is crucial.
6.) Trying your luck
Trading is often thought of as a form of gambling; however, what separates gamblers from traders is their research and calculated risk taking. Simply hoping a currency will turn around and skyrocket is not a good trading strategy.
Do your research, use an effective strategy and have a stop-loss and exit plan in place.
7.) Trading on emotions
When you’re making good profits, or your assets are taking a plunge, it’s inevitable that you will feel a range of emotions. Things going against you might lead to brash decisions that ultimately lead to more damage. However, good traders know how to manage their emotions and trade separately from what they may be feeling.
Similarly, successful trades can lead to overconfidence or complacency, which can be equally dangerous when trading.
As trading grows in popularity in 2018, new traders entering the market, hoping to become successful traders, will be prone to making mistakes. Whatever you’re trading, be it cryptocurrency, stocks or fiat currency, there are numerous mistakes that are often made but can be avoided. Do your research, know your strategy , stay calm and you will be on your way to achieving success.
Alana Downer works at Bizinfo.in. She is an experienced blogger whose main interest lie in finances and new technologies. She might often be found online, sharing her insights into technology trends which shape the way both businesses and individuals function.
