Uncomfortable fact: most traders lose money. So the odds are that if you’re trading you’re doing it wrong. It sounds harsh, but the statistics have my back!
So here are some worryingly common mistakes that traders make. Read this before you make another financial move
You’re not paying attention to the news
The value of any given asset is going to be affected by the world around you. After all, these things don’t exist in a vacuum! If you’ve got stocks in a company, you should be keeping up to date with what that company is doing. Of course, this might not be true for all trading types (more on that later). People looking for really long-term investments might be better off ignoring the news and not touching the asset for as long as possible. But this is a rare case.
You’re reacting to the news too much
When some big news story breaks, traders often get ready to take a particular course of action. But the problem with pre-positioning is that you don’t know how the market is going to react to any given news story. It’s the reaction that you need to be on the lookout for, not the story itself. Trading immediately after the news hits is very common. And that’s exactly what usually causes the exact negative effects the traders were afraid of in the first place!
You don’t know what type of trader you are
People often start trading because they like the idea of being a trader. But “trader” is way too vague a term. There are so many different types of trader. You need to figure out what trading pursuit is suited to you. Your personality, your risk threshold, your capital, your location… All of these things affect your suitability for a given trading type. There are at least 14 types of traders. And if you’re trading in the wrong field for you, that could mean big losses that you could easily have avoided.
You don’t have a risk maximum
You probably already know that one of the most common mistakes in this field is risking too much money. But how exactly do you define “too much money”? A lot of people take it to mean 100% of your capital. (That 100% is too much should be pretty obvious!) Some will say that 50% is risky. But “too much” might be a lot less than you think. Professional, successful traders rarely risk more than 1% of their capital on a given venture. You should take a similar approach with your risk maximums!
You only have a vague end goal
For most people, the end goal of trading is to “make money”. Actually, it could more accurately be called “make a lot of money”. This seems like a fairly decent goal, right? The problem is that it’s too vague. It’s too general. The fact is that most traders aren’t going to make a lot of money – most, in fact, lose money. So it’s quite clear that that strategy, on its own, simply doesn’t work. You need to have a day-to-day strategy with more short-term, realistic goals.