Five Major Mistakes in Trading

First of all, ignorance is the main key to failure in trading. In this arena, we refer to many aspects of ignorance such as being oblivious to risk factors, uninformed of fundamental changes, unknown market features of an instrument, unfamiliar to trend behavior etc. Hence, if you are ignorant to your own business product when you try to promote it, this is equivalent to trying to make profits from the market when you do not know the instrument well!



Next, trading with no game plan is like going into the deep jungle trekking without a compass and map. Never think trading is just about hitting a blue and red button. The price swings of the trend might effectively wane the fighting spirits and confidence of a newbie easily if no mental and trade preparation were properly done. In fact, a trading plan refers to the proper criteria of finding a new entry coupled with risk management and exit level. Do not depend of luck as no professional in any field can survive for a life-time in their respective career if they do not know what they are doing every day.



Averaging on losses is the fastest way to bankruptcy! If you think this is a joke, it will take you no time to start auctioning your assets for paying your losses. By nature, averaging on losing positions are easiest way to break even in trading stock markets though this "foolish" act has proven to be futile in every market crash. But if you try doing this in margin trading in futures market, most stubborn traders will find the market will come back to their entry price only after months or years later, when all their assets have been whipped out.



The fourth mistake is the habit of sitting on random losses. Even if one thinks he does not average but simply sit on 1 single losing position. Beware the "cow" may take an uncertain period of time to dawdle or perhaps, it will never come home to your favor. Most ignorant new traders think they have enough margin buffers to sit and wait randomly for the losses to be neutralized by reversing trend. Unfortunately, the time opportunity they have lost on the price fluctuation has proven unproductive in the purpose of leveraged trading.



Lastly, over-leveraging is a fatal act due to either greed or ignorance. Margin trading requires an amount of deposit relatively to the full face value of the traded instrument. In other words, the other partial value that is uncovered by your margin is actually the exposed risk! Thus, high leveraging factor offered by the broker may not be a good trading term to traders. Simple speaking, if the margin deposit is 10 percent of the face value and margin-call will activate when the collateral reaches 50 percent losses, that means a floating losses of 5 percent from the face value of the financial instrument would have kicked you out of the game! Therefore, have at least three times the margin deposited as required by your broker.



Of course, there are thousand and one reasons why traders lost monies. But it needs only one reason for a trader to make profit from making a trading transaction. That is, to eradicate the above 5 mistakes in trading and re-develop the good habits of a consistent trader.