It often happens that many beginner investors get “stolen” by the excitement of the first profitable transactions, or are negatively influenced by the first transactions closed in stop loss. Over time, I myself have made enough mistakes in my daily trading activity, and I have seen enough mistakes made by other investors who are either new to this business, or with some experience accumulated over the years, but without learning much. many of their own mistakes.
I have identified some of the most common mistakes made in trading, whether you are an active or passive investor in the financial market, mistakes that I share with you, mistakes that I am sure many of you will recognize.
Mistake no. 1: Buy low and sell high: or the reverse, entering trades at the end of price/momentum/trend movement.
The best times to enter and exit the market are obvious… in charts or hindsight. The reality can be much more complex. What seems like a good time for a correction or trend change at first glance, very often turns out to be just a small stop in the middle of the trend/trend. How many times have I not heard, including from many of those present, that “you can’t go more than that (the price)”. And yet reality has proven the opposite… Similarly, many investors enter the market at highs and lows and still with great enthusiasm, following the principle of not missing the entry, even though it has been missed for a long time, or following the principle of catching something from this movement. Sound familiar?
Tip: Oscillator technical indicators, and I mean the most well-known ones here – MACD, RSI – help determine entry/exit moments and estimate the strength of the current price trend on the chart.
Mistake no. 2: Big problems with admitting mistakes
Too many investors believe that everyone else is to blame but themselves for the trades completed at a loss. Here I am talking about a common error that is related to overconfidence in one’s own analysis or, on the contrary, to the fear of taking a loss, things that cause a similar reaction, namely moving the two parameters, stop loss and take profit or even more moreover, removing the two parameters from transactions. After all, who needs a stop loss? If he’s not on the chart then I can’t charge him, right?
The market changes, a new important circumstance could arise that changes the conditions of the initial analysis, but I have noticed that for many investors it seems that they just need a little to stay calm and wait until the loss “disappears” and then they will also receive a reward “. Hope in the financial markets can cause the biggest losses to investors regardless of experience.
Tip: Your analysis and predictions might be relevant, but not infallible. Even the biggest investment banks change their expectations and forecasts. There is nothing wrong with that.
Here’s a quick lesson on risk management: you should always have an exit plan before making a trade. By using stop-loss, you can limit your loss if you happen to make a mistake. The stop-loss function is automatically activated if a certain specified price level is reached. With a stop-loss, you know exactly how much you will lose because the position size and stop-loss price are calculated before you make a trade.
Stop-Loss can be converted into Take-Profit. How? Identifying and acknowledging mistakes can lead to avoiding them in future transactions. It is absurd to have different expectations while making the same mistakes.
Mistake no. 3: Failure to follow the trading plan or even the absence of a trading plan
The lack of a clear trading plan for investors at the beginning of their journey is due either to a lack of knowledge necessary for investment activity or to a lack of experience: the investor in this situation simply has not yet decided what is important and what is not.
Tip: Follow the trading plan according to the applied strategy.
Following the steps in the trading plan means that you determine the solid parameters for entering and exiting the trade and follow them as closely as possible. Deviation from the trading plan is not allowed, except during periods of increased market volatility, periods when, depending on risk appetite, either hedge positions more quickly and leave positions open for a longer period of time in order to profit maximization or to close positions faster and reduce risks. In the long run, having a trading plan can bring profitable results and it brings the most important thing: discipline. Discipline can make the difference between profit-makers and non-profits in the financial markets, and over the long term, discipline can make the difference between profit-makers and financial performers.
Mistake no. 4: Emotions. Managing them.
It is worth noting that emotions are an integral and very important part of trading for most investors. They could bring healthy excitement and competitive spirit to those who trade. However, there is also a flip side as investors may fall into euphoria when they make profits or deep sorrow when they take losses.
Tip: Greed and fear lead to mistakes. I’m used to saying let’s not make take-profit a wedding and stop-loss a funeral; it is healthier to stick to the trading plan.
“The human side of every person is the worst enemy of the average investor” (Jesse Livermore – considered a pioneer of day trading).
Mistake no. 5: Amateurs predict. Professionals react.
Amateur investors always want to predict. They want to express their opinions about the market and think they know why something will happen. There is always a fantastic story involved. An amateur investor trades on a belief or recommendation and most of the time has no real exit plan because he is sure he is right. Obvious!
You will soon learn that the market doesn’t care what YOU think.
If you ask a professional investor, “Where do you think the market is going next?”, the most likely answer will be “I have no idea!” To an inexperienced investor, this might sound strange, right? Or that maybe this experienced investor is hiding something or not revealing his secrets. But the truth is that investors who make money in the financial markets do not agree to play the game of predicting what the market will do next; they are in the game of reacting to market movements.
Professional investors can make money from the markets because they are very flexible and do not have strong opinions about any potential market direction. They just sit and wait for trading opportunities that their system of positive expectations generates, the strategy that they have learned and applied repetitively – which over time has brought them, what I call, the Holy Grail of investment activity namely DIS-CI-PLI-NA. They let the chart show them which way it will go next, they will never force the price in a certain direction because they know it can’t be done.
People gravitate towards things that promise easy money without work. This is human nature. Unfortunately, things that work also require work, sometimes a lot of work, attention, and discipline.
