7 Worst Trading Mistakes That Bigginer Traders Make-Binoption

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The Worst Mistakes Beginner Traders Make

Traders generally buy and sell securities more frequently and hold positions for much shorter periods than investors. Such frequent trading and shorter holding periods can result in mistakes that can wipe out a new trader’s investing capital quickly. Here are the 10 worst mistakes made by beginner traders:

Letting losses mount
One of the defining characteristics of successful traders is their ability to take a small loss quickly if a trade is not working out and move on to the next trade idea. Unsuccessful traders, on the other hand, get paralyzed if a trade goes against them. Rather than taking quick action to cap a loss, they may to hold on to a losing position in the hope that the trade will eventually work out. In addition to tying up trading capital for an inordinate period of time in a losing trade, such inaction may result in mounting losses and severe depletion of capital.

Failure to implement stop-loss orders
Stop-loss orders are crucial for trading success, and failure to implement them is one of the worst mistakes that can be made by a novice trader. Tight stop losses generally ensure that losses are capped before they become sizeable. While there is a risk that a stop order on long positions may be implemented at levels well below those specified if the security gaps lower, the benefits of such orders outweigh this risk. A corollary to this common trading mistake is when a trader cancels a stop order on a losing trade just before it can be triggered, because he or she believes that the security is getting to a point where it will reverse course imminently and enable the trade to still be successful.

Not having a trading plan or sticking to one
Experienced traders get into a trade with a well-defined plan. They know their exact entry and exit points, the amount of capital to be invested in the trade, and the maximum loss they are willing to take, etc. Beginner traders may be unlikely to have a trading plan in place before they commence trading. Even if they have a plan, they may be more prone to abandon it than seasoned traders if things are not going their way. Or they may reverse course altogether (for example, going short after initially buying a security because it is declining in price), only to end up getting “whipsawed.”

Averaging down (or up) to redeem a losing position:
Averaging down on a long position in a blue-chip may work for an investor who has a long investment time horizon, but it may be fraught with peril for a trader who is trading volatile and riskier securities. Some of the biggest trading losses in history have occurred because a trader kept adding to a losing position, and was eventually forced to cut the entire position when the magnitude of the loss made it untenable to hold on to the position (or alternatively, because his bosses discovered the true extent of the trading loss). Traders also go short more often than conservative investors, and “averaging up” because the security is advancing rather than declining is an equally risky move that is another common mistake made by the novice trader.

Excessive leverage:
According to a well-known investment cliché, leverage is a double-edged sword, because it can boost returns for profitable trades and exacerbate losses on losing trades. Beginner traders may get dazzled by the degree of leverage they possess, especially in forex trading, but may soon discover that excessive leverage can destroy trading capital in a flash. If leverage of 50:1 is employed – which is not uncommon in retail forex trading – all it takes is a 2% adverse move to wipe out one’s capital.

Trading too frequently:
Overtrading can erode returns to the point where nice profits turn into significant losses. While experienced traders have generally learned the hard way that trading too frequently can be severely detrimental to overall returns and performance, new traders may have yet to learn this lesson.

Following the herd
Another common mistake made by new traders is that they blindly follow the herd, and as a result they may either end up paying too much for hot stocks or may initiate short positions in securities that have already plunged and may be on the verge of turning around. While experienced traders follow the dictum of “the trend is your friend,” they are accustomed to exiting trades when they get too crowded. New traders, however, may stay in a trade long after the smart money has moved out of it. Novice traders may also lack the confidence to take a contrarian approach when required.

Shirking homework
New traders are often guilty of not doing their homework or not conducting adequate research before initiating a trade. Doing homework is critical because beginner traders do not have the knowledge of seasonal trends, timing of data releases, and trading patterns that experienced traders possess. For a new trader, the urgency to put on a trade often overwhelms the need for undertaking some research, but this may ultimately result in an expensive lesson.

Trading multiple markets
Beginner traders may also flit from market to market, e.g., from stocks to options to currencies to commodity futures, to name a few. However, trading multiple markets can be a huge distraction and may prevent the novice trader from gaining the experience necessary to become a specialist and excel in one market.

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Overconfidence or hubris
Trading is a very demanding occupation, but the “beginner’s luck” experienced by some novice traders may lead them to believe that trading is the proverbial road to quick riches. Such overconfidence is dangerous as it breeds complacency and encourages excessive risk-taking that may culminate in a trading disaster.

In Summary
Trading can be a profitable endeavor, as long as the trading mistakes mentioned above can be avoided. While traders of all stripes are guilty of these mistakes from time to time, beginner traders should be especially wary of making them, as their capacity and capability to bounce back from a severe trading setback is likely to be much more restricted than with experienced traders.

Elvis Picardo can be contacted at Global Securities Corporation

What are the biggest mistakes a trader should avoid in stock trading?

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Well, mistakes are made.

It should have been singular. Mistake.

You can not be making many mistakes and all of them biggest.

A trader makes mistakes almost in every trade. How do we say that one particular mistake is the biggest ?

It is indeed difficult to identify a single one.

I would settle for 3 mistakes and express my views for whatever they are worth.

I have made these mistakes at some point of time and suffered for it. Other traders too may be doing the same knowingly or unknowingly.

Reliance Infra was trading at around Rs. 453–454 o.

10 Avoidable Mistakes Forex Day Traders Make

Your success depends on avoiding these pitfalls

The foreign exchange market (forex) has a low barrier to entry, which makes it one of the world’s most accessible day trading markets. If you have a computer, an internet connection, and a few hundred dollars, you should be able to start day trading.

This easy-entry is not a promise of a quick profit, however. Before you take the plunge, consider these 10 common mistakes you should avoid, as they are the main reasons new forex day traders fail.

If You Keep Losing, Don’t Keep Trading

There are two trading statistics to keep a close eye on: Your win-rate and risk-reward ratio.

Your win-rate is how many trades you win, expressed as a percentage. For example, if you win 60 trades out of 100, your win-rate is 60%. A day trader should work to maintain a win-rate above 50%.

Your reward-risk ratio is how much you win relative to how much you lose on an average trade. If your average losing trades are $50 and your winning trades are $75, your reward-risk ratio is $75/$50=1.5. A ratio of 1 indicates you’re losing as much as you’re winning.

Day traders should keep their reward-risk above 1, and ideally above 1.25. You can still be profitable if your win-rate is a bit lower and your reward-risk is a bit higher, or vice versa. Try to keep it simple though, and develop strategies that win more than 50% of the time and offer a better than 1.25 reward-risk ratio.

Trading Without a Stop Loss

You should have a stop-loss order for every forex day trade you make. A stop-loss is an offsetting order that gets you out of a trade if the price moves against you by an amount you specify.

When you have a stop-loss order on your trades, you have taken a large portion of the risk out that investment. If you start taking losses on a trade, the stop-loss prevents you from losing more than you can handle.

Adding to a Losing Day Trade

Averaging down is adding to your position (the price you purchased the trade at) as the price moves against you, in the mistaken belief that the trend will reverse. Adding to a losing trade is a dangerous practice. The price can move against you for much longer than you expect, as your loss gets exponentially larger.

Instead, take a trade with the proper position size and set a stop-loss on the trade. If the price hits the stop-loss the trade will be closed at a smaller loss than it would have without it. There is no reason to risk more than that.

Risking More Than You Can Afford to Lose

The key part of your risk management strategy is to establish how much of your capital you are willing to risk on each trade. Day traders ideally should risk less than 1% of their capital on any single trade. That means that a stop-loss order closes out a trade if it results in no more than a 1% loss of trading capital.

That means that even if you lose multiple trades in a row only a small amount of your capital will be lost. At the same time, if you make more than 1% on each winning trade your losses are recouped.

Another aspect of risk management is controlling daily losses. Even risking only 1% per trade, you could lose a substantial amount of your capital in a single bad day.

You should set a percentage for the amount you are willing to lose in a day. If you can afford a 3% loss in a day, you should discipline yourself to stop at that point. Day trading can become an addiction if you let it. Only play with the money you have set aside, and stick to your strategy.

Going All In (Trying to Win It All Back)

Even if you have a risk management strategy in place, there will be times you will be tempted to ignore it and take a much larger trade than you normally do. The reasons vary, and you’ll be tempting fate to do her worst.

You might have had several losing trades in a row, which will make you want to earn back some of the losses. A winning streak can make you feel as if you can’t lose. There will always be one trade promising such good returns, you are willing to risk almost everything on it.

If you risk too much you are making a mistake, and mistakes tend to compound. Traders have been known to their stop-loss order in the hopes of a turnaround. Many also get caught up keeping their margin, telling themselves it will turn around and they’ll win big.

When you feel this way, stick to your 1% risk per trade rule and your 3% risk per day rule. Resist temptation, stick to your risk management strategy and avoid going all in or adding to your position.

Trying to Anticipate the News

Many pairs (two stocks—one long, one short, both correlated) rise or fall sharply in the wake of scheduled economic news releases. Anticipating the direction the pair will move, and taking a position before the news comes out, seems like an easy way to make a windfall profit. It isn’t.

Often the price will move in both directions, sharply and quickly, before picking a sustained direction. That means you are just as likely to be in a big losing trade within seconds of the news release as you are to be in a winning trade.

There is another problem. In the initial moments after the release, the spread between the bid and ask price (highest purchase price and lowest sell price) is often much bigger than usual. You may not be able to find the liquidity you need to get out of your position at the price you want (using smaller trades to get out of the position).

Instead of anticipating the direction that news will take the market, have a strategy that gets you into a trade after the news release. You can profit from the volatility without all the unknown risks. The non-farm payrolls forex strategy is an example of this approach.

Choose the Wrong Broker

Depositing money with a forex broker is the biggest trade you will make. If it is poorly managed, in financial trouble, or an outright trading scam, you could lose all your money.

Take time in choosing a broker. There is a five-step process you should go through when deciding on which broker to use. You should consider what you want to accomplish, what a broker offers, and use reliable sources for broker referrals. Then, test the broker using small trades at first, and don’t accept offers of bonuses with their services.

Take Multiple Trades That Are Correlated

You may have heard that diversification is good. Diversification is a strategy that depends on your knowledge, experience, and what you are trading. Warren Buffett once said about diversification:

“Diversification is protection against ignorance. It makes little sense if you know what you are doing.”

If you believe in diversification you may be inclined to take multiple day trades at the same time instead of just one, thinking you are spreading your risk. Chances are you are actually increasing it.

If you see a similar trade setup in multiple forex pairs, there is a good chance those pairs are correlated. That is why you are seeing the same setup in each one. When pairs are correlated, they move together, which means you will probably win or lose on all those trades. If you lose, you have multiplied your loss by the number of trades you made.

If you take multiple day trades at the same time, make sure they move independently of each other.

Trade Based on Fundamental or Economic Data

It is easy to get caught up in the news of the day or to form a bias based on an article you read that says economic conditions are good or bad for a particular country or currency.

The long-term fundamental outlook is irrelevant when you are day trading. Your only goal is to implement your strategy, no matter which direction it tells you to trade. Bad investments can go up temporarily, and good investments can go down in the short-term.

Fundamentals have absolutely nothing to do with short-term price movements—using fundamental analysis causes you to focus on the wrong concepts and form biases. Any long-term biases can only cause you to deviate from your trading plan. Your trading plan and the strategies it contains are your guide in the market and prevent you from taking unnecessary risks, or gambling.

Trading Without a Plan

A trading plan is a written document that outlines your strategy. It defines how, what, and when you will day trade. Your plan should include what markets you will trade, at what time and what time frame you will use for analyzing and making trades.

Your plan should outline your risk management rules and should outline exactly how you will enter and exit trades for both winning and losing trades.

If you don’t have a trading plan, you are taking unnecessary gambles. Create a trading plan and test it for profitability in a demo account or simulator before trying it with real money.

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