Top six trading mistakes
1 NOT MAKING A PLAN
Treating your trading platform like a computer game and attempting to trade on the fly is perhaps the most fun way of approaching the markets, and certainly avoids the drudgery of fundamental and technical analysis, but it is probably also the fastest and most efficient way of zeroing your account balance. Mistakes 2-5 on this list can be avoided to some degree with a well thought out trading plan.
2 MOVING YOUR STOPS
“Once you’ve decided on your risk parameters, you should place your stop loss and have your profit target and stick to them,” says Angus Campbell, head of market analysis at Capital Spreads. “If you start moving your stop loss further away then you’ll end up in the losers game of running your losses.” Moving stops is not absolutely verboten, but doing so can lead to inconsistency and mistakes. Campbell adds: “Of course, there’s nothing to stop you from moving a stop to lock in a profit if the trade goes in your favour and automatic trailing stops allow you to do this if you’d rather not have to do it manually.”
3 TRADING FOR TRADING’S SAKE
We’ve all been sat staring at the charts on a flat, illiquid day when it seems like it could be a more worthwhile exercise betting on raindrops going down a window pane that trying to eke something out of a sideways New York session. But trading for the sake of trading is something that should be avoided. In fitting with your trading strategy and plan, before you enter into a trade you should ask yourself why you are doing so – an exercise that can prevent rash trading.
4 CHASING YOUR LOSSES
More than 80 per cent of trades are successful, but despite this, many lose more than they win. The reason: people stay too long in a losing position, hoping that things will turn around. Think about why you are going into a position, but also when you are going to get out of it – both on the upside and in the event of a loss. A trader could be sat in a losing trade from £50 all the way down to £20, refusing to acknowledge a losing position. Close the trade, book the loss and move on.
5 REFUSING TO LEARN FROM MISTAKES
While it is important to have a plan and a well thought out trading strategy, it should not be completely set in stone. And though it is unlikely that he had a spread betting account, John Maynard Keynes said in reply to his monetary stance: “When the facts change, I change my mind.” If you find your trading philosophy and strategy to be flawed, don’t be too stubborn to change your mind. Learn from your mistakes and adapt your plans.
6 FORGETTING YOUR HOMEWORK
It is all well and good plotting your entry and exit points into a euro-dollar trade, but if you don’t pay attention to the newswires, you could get steamrollered by a central bank intervention. Keep an eye on economic announcements – when they are scheduled and the likelihood of a change in policy. And it’s not just central banks that can flatten you. If you’re on the wrong side of an International Energy Authority (IEA) strategic oil reserve release, your language could get a little crude.