Lacking of a Trading Strategy Can Be Fatal
If you recognize the pitfalls of trading, you’ll be able to easily avoid them. Small mistakes are inevitable, like entering the incorrect symbol or incorrectly setting a buy level. But these are forgivable, and, with luck, even profitable. What you have got to avoid, however, are the mistakes because of bad judgment instead of simple errors. These are the deadly mistakes which ruin entire trading careers rather than only 1 or two trades. To avoid these pitfalls, you’ve got to observe yourself closely and stay diligent.
Think of trading mistakes like driving a car on icy roads: if you recognize that driving on ice is dangerous, you’ll be able to avoid traveling in an exceedingly sleet storm. But if you do not understand the risks of ice, you would possibly drive as if there has been no threat, only realizing your mistake once you’re already off the road.
Although trading involves risk, never treat it like gambling.
you need to have a solid trading strategy, one which you intend, test, and revise repeatedly. you would like to stay to the current strategy, and never act on spur-of-the-moment decisions. All you are doing once you act on a gut feeling is jeopardize any and every one of the thoughtful planning you’ve done by giving yourself completely over to chance. Remember that you just can never control where one trade will find yourself, but you are doing have control over a long-term plan.
And don’t evaluate your performance on the idea of individual trades. A gambler might think that a tiny low loss may be a failure while one huge risky gain means success. Traders should never think this manner. Instead, judge yourself by the consistency and profitability of your overall strategy. this can be the sole thanks to stay up to speed of your trading success.
To do this, of course, you’ve got to create a solid strategy. this implies developing a group of pre-defined rules that you just follow consistently. you ought to set goals for every week, or possibly monthly (but never for one day, as there are too many belongings you won’t be able to control over such a brief period of time). Next, choose realistic profits and losses for every trade. Then, in keeping with these markers you’ve set for yourself, perform your plan without exceptions.
If your set profit for a trade is, say, $300, sell after you reach that milestone, whether or not you have got a sense the stock will rise. Otherwise, you corrupt your plan with an excessive amount of risk, and you will never know if your overall strategy was successful or not. you’ll have gotten lucky with one trade, but you haven’t determined any quite consistency.
Keeping to a technique will allow you to revise what you’re doing, learning which goals and limits will work and which won’t. Straying from your strategy teaches you nothing useful that you just can apply over the course of your trading career. So, while you’ll gain some hundred, or maybe thousands, of dollars on one trade, who knows what proportion knowledge you sacrificed, knowledge could have gained you tens or maybe many thousands of dollars within the years to return.