You should avoid leverage when trading

10 mistakes traders make when trading

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08 August 2017

Trading is exciting. Trading is hard. Trading is extremely difficult. Some say that whoever practices 10,000 hours can become a master. Others believe that trading can get you rich quick. Probably both groups are wrong.

No matter how experienced you are, the important thing is that mistakes are part of the way. Easier said than done, you will now say - and you are right. That's why we've compiled a list of the most common trading mistakes that you should try to avoid if you really want to become a profitable trader. As you will see at the end of the article, there is no magic or rocket science behind trading, and in fact, it is a good place to make a living.

1) You act without a predefined plan

Nothing works without a trading plan. Write that down and post this tip so you will be reminded of it regularly. It is a fatal mistake when you, as a newbie, act without a pre-defined plan. This can only go wrong. A fixed trading plan will help you for two reasons: Trading depends on various aspects, with the situation on the international financial markets playing an important role. In this sense, index futures such as the Nasdaq 100 can be viewed as a leading indicator of the general risk appetite of market participants.

Create a to-do list and develop a habit of how you want to analyze the international financial markets in the future, even before you open a position. This not only avoids unnecessary risks, but also minimizes the chance of losing a lot of money in a short period of time.

2) You are using too much leverage

Choosing too much leverage undoubtedly falls into the "10 mistakes traders make when trading" category. The lever is a double-edged sword. While it can make big profits when you're on a winning streak, it can also make big losses if the trend is suddenly blown out of the sails. According to the latest media reports, the British financial regulator wants to drastically revolutionize CFD trading with stocks, indices and commodities. For profit traders, the leverage is then limited to 1:50, for newcomers to 1:25. Brokers want to prevent customers from losing their money in a short period of time. This is good news for beginners because it automatically reduces their risk. You can also follow your money management more easily. For greedy and impatient traders, of course, this is terrible news. However, their performance can also improve in the long term.

If you think you can make more money in a short amount of time because of the greater leverage, you are completely mistaken. Many traders get lost in such train of thought and so it happens, as it has to, they lose their money in no time. Some brokers sometimes offer insane leverage (like 1: 2000). Those who offer such a large leverage should be carefully examined beforehand. In our opinion, the best strategy is to park your money with different brokers.

3) You read your charts all the time

a) Define entry rules

Computer systems are much more efficient because they have no feelings. They do not react emotionally to factors related to trading. In addition, computer programs can do many more things at the same time. That is not possible for a mechanical trader. That's why more than 50 percent of all trades on the New York Stock Exchange are done through computer programs.

A typical entry rule can be as follows: "If signal A is activated and the price target is three times the loss limit and the asset is at a chart support, then buy X contracts". Computers are much more rational when it comes to making quick decisions based on a predefined set of rules. No matter how experienced a trader is, sometimes they hesitate in making a decision, no matter which set of rules they follow.

b) Establish exit rules

Traders typically focus 90% of their time on entry, but never pay attention to how to exit the trade. In some situations it can be difficult to part with a losing position, but it is definitely smarter to realize a loser and be on the lookout for new opportunities.

Profit traders lose a few traders every day, but they manage their money more effectively and limit their losses, resulting in profitable trading. So, before you get started, decide on your exit. You usually have to define two exits per trade: The first exit corresponds to the loss limit, also known as the stop loss. Where do you want to close the trade once it develops against you? You have to make a note of this course level. Mental stops don't count here. The second course level defines the course objective. As soon as this level is reached, you sell part of your position and you can let the rest continue by adjusting your loss limit to break-even. As we pointed out above, you should never risk more than a few percent of your portfolio per trade.

4) You are impatient

What are the 10 mistakes a trader can make? Mistake number 4 is impatience. Patience pays double in currency trading because it allows you to sit back and wait for the right opportunity to arise. However, many traders try to take advantage of every opportunity that presents itself. This is probably due to our human nature and the need for easy money. But if there is one thing that gives you a high chance of winning it is patience. This will take some time, as there are many influencing factors to consider, such as the emergence of a trend, trend corrections, highs and lows. However, if you approach it impatiently, it is only a matter of time before you gamble away your money in the market. Sometimes it can even be helpful to just take a break and analyze the big picture instead of just looking to one side of the coin. Always remember that if you trade in the wrong place at the wrong time, even a single trade can result in a series of losses. It takes time and patience to wait for a market correction, but it pays off in the end.

BUT IT TAKES TIME ... Some traders still don't understand the concept that success simply takes time. They often fail because of their own impatience and because they speculate for quick wins. Trading is hard going and the charts are sometimes really difficult to interpret, so it is often better to shift down a gear to avoid costly mistakes. The market will often play with them and generate the wrong signals. Wait patiently for the best opportunity and act wisely and deliberately.

5) You ignore the overall trend

"The trend is my friend" - what a simple phrase, isn't it? But it will help you to be on the right side of the market. If you think the same way about trading as we do, it could be a very boring business indeed, but at least one that makes money into the coffers. We are not interested in quick returns. We are also not interested in penny stocks. We are not even interested in the hotly debated trades that everyone is talking about. We prefer to do our own analysis. The more boring a trade looks, the better the trade is for us. Always be aware of the overall trend before placing a trade.

6) You only focus on one direction

There is a popular saying that if you throw a frog into boiling water, it will do whatever it takes to escape the inferno. But if you put him in lukewarm water and slowly increase the temperature, he will cook while he is still alive, without making any effort to leave his warmth prison. Decision-making studies show that people are more likely to accept an ethnic dilemma if it happens in small steps than if it happens in one fell swoop. This phrase aptly describes the unfortunate process of unprofitable trading. If you find yourself in a losing position, you usually don't realize it if it slowly turns into a big loss. You stick to your assessment and it can put you in a potentially dangerous situation. This is why objectivity is so important in trading. But this area is really the most difficult element in trading. Inattention blindness is definitely not helpful to human psychology and trading can not only be very harmful but also very expensive.

7) You barely prepare to trade or have no strategy

Before trading, make sure to exit all unnecessary programs on your computer. This updates the cache and memory. Some trading programs allow you to customize your environment according to your needs. You should set up these so that you experience only minimal distractions so that you can see everything and are not disturbed.

Do not forget that a mistake in the trading system can be very costly. Make sure you have a proven trading strategy that will give you positive results over a longer period of time. Do not rush into anything, do not make hasty decisions, because you have time.

8) You are acting too emotionally

Trading the financial markets feels like stepping on the battlefield - before entering the battlefield you must be emotionally and psychologically prepared for it, otherwise you will enter warzone without a sword in your hand. Make sure to check three things before starting trading: 1) you are calm and composed, 2) you had a good and restful sleep, and 3) you are ready for a real challenge.

It is crucial that you have a positive attitude towards trading. When you are upset, busy, or just sagging, the risk of making a losing business increases. Make sure you are genuinely relaxed before entering the market, even if you have to take a yoga class to do so, it's well worth it.

9) You have little knowledge of money management

Number 9 of the 10 mistakes traders make when trading is money management. Never risk more than 1 to 2 percent of your portfolio in a single trade. Even if you incur a loss or two, with this percentage you can be sure that you will still be able to act tomorrow.

Think of it this way: the amount you risk per trade is the amount you can win back the next day. You should start with a small amount and then increase it slowly and gradually. Money management is the pillar of successful stock market trading - and of course it's one of the most common mistakes unprofitable traders make.

10) You do not keep a trading journal

Keeping a trading journal is key to trading successfully. When you win a trade, write down the reasons for it. If you lose a trade, you should also write about why it happened and what you can do about it to avoid the same mistake on the next trade.

For example, write down your course goals, entries and exits. In addition, write down the time of entry, support and resistance levels, the opening and closing price, and comment on every trade you made. You will find that you learn something new every time.

You should of course save your trading diary so that you can analyze your profit and loss trades at the weekend and adjust your system if necessary. You must always remember this: trading is a legitimate business and you are the accountant.

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