Hello guys, in this video we’re going toaddress the most common mistakes that we, as traders make every day, mistakes that arestopping us to become more profitable when trading the markets.
There is a common sequence of events thatmost traders go through during their development.
We record some good trades, with decent profits, but then we have those days when everything goes wrong and every time some progress isbeing made, something happens that stops this progress.
If this is something that you can relate to, don’t worry you are not alone.
Spending time in this area to understand themistakes we make is very important to our development as traders.
So, before you take the next trade, considerthese 10 common mistakes you must avoid, as they are the main reasons new traders failto increase their accounts.
The first mistakes is putting your stop lossorder to breakeven when in profit.
The purpose of a stop is to protect you ifyour trade idea doesn’t work out and not to obtain a “risk-free” trade the momentthe market moves in your favor.
Your stop should be based on technical analysis, and not on the number of points you are in profit.
The market doesn’t care where you enteredand where you’re break even.
The moment you arbitrarily move your stopto be “safe” you also abandon a technical-based approach to your position.
So, stick to your original trading plan, andlet the market prove to you that you’re wrong by hitting your original stop loss ifit moves against you and only move your stop loss when the technicals indicate so.
Another major mistake is trading multipleinstruments that are correlated.
On forex market, you can often see a verystrong correlation between certain forex pairs while on the stock market, you will noticethat companies within the same industries and sectors, often move together over longperiods.
Many traders enter positions on trading instrumentswhich are positively correlated, will lead to increased risk.
You see, traders often believe that by takingseveral trades in different instruments they are diversifying and diminishing their risk.
What these traders don’t realize is that, especially if the trading instruments are somehow correlated, they often move in syncand instead of decreasing the risk, they are actually increasing it.
So, pay attention to instruments that arecorrelated.
Another major mistake i personally made wastrying to anticipate the news.
When i started trading, my main focus wason forex market, where as you know, many currency pairs rise or fall sharply in the wake ofscheduled economic news releases.
Anticipating the direction the pair will move, and taking a position before the news came out, seemed like an easy way to make a profit.
I soon found out that it wasn't.
Trading the news may seem easy, with a lotof potential to make easy profits but often the price will move in both directions, sharplyand quickly, before picking a sustained direction.
That means you’ll likely be in a potentialbig losing trade within seconds of the news release.
You may be thinking it’s not so bad afterall, with all that volatility, the price could swing back in your favor.
Maybe it will, maybe it won't.
But there is another problem.
In those initial moments, the spread betweenthe bid and ask price is often much bigger than usual.
You may not be able to find liquidity to getout of your position at the price you want.
So, instead of anticipating the directionnews will take the market, have a strategy that gets you into a trade after the news.
You can profit from the volatility withoutall the unknown risks.
A big problem that inhibits many traders’success is that they are focusing on too many markets in addition to all the other tradingvariables they are overly-focused on.
Just because you can trade all the marketsoffered by your broker doesn’t mean you should.
Despite this obvious fact, many traders confuseand frustrate themselves everyday by trying to track and trade too many markets.
The solution is to scale-back the amount ofdata you’re trying to make sense of as you analyze the markets.
Putting the odds in your favor is not doneby trying to keep track of 10 or 20 different markets and search them for signals each day.
Your aim should be to become a market specialist, who trades on fewer markets.
One of my biggest mistakes during my firstyears of trading was the belief that price cannot move higher/lower.
“Oversold” and “overbought” are two overusedterms thrown around by nearly everyone.
When you are being taught on how to tradedifferent trends, using certain indicators, one of the first lessons is to look for overbought/oversoldmarkets and search for entry signals other way around.
The truth is that markets can always get moreoversold and can stay oversold for extended periods.
The same is true with uptrends.
I corrected this mistake when a mentor inthe business once told me that an overbought or oversold market that doesn't correct muchis in fact a strong market.
Another mistake is changing indicators/tradingstrategy too often.
Let me ask you something : how many timesdid you change your trading strategy or adjusted your indicator settings after you lost 3 or4 trades in a row because you thought your strategy wasn’t working anymore? We all done this, it’s a common problemmost traders face.
It’s important that you stop evaluatingyour strategy based on 1, 2 or 5 trades and understand the implications of long-term thinking.
Never change your system after a few losingtrades! If traders would stick to their strategiesa little longer and not give up so quickly during times of adversity, we’d probablysee a lot more profitable traders.
You must consider this: losing and winningstreaks are normal and no matter how good you are as a trader, they will happen.
Don’t give up on your strategy too early.
Another mistake made by many traders is usingtoo much margin or leverage.
Leverage is a double-edged sword, becauseit can boost returns for profitable trades and exacerbate losses on losing trades.
Beginner traders may get dazzled by the degreeof leverage they possess, especially in forex trading, but may soon discover that excessiveleverage can destroy trading capital in a second.
In order to become a successful trader, itis crucial that you understand both the benefits and the pitfalls of trading with leverage.
When leverage works, it increases your gainssubstantially.
But leverage can also work against you.
If your trade moves in the opposite direction, leverage will amplify your potential losses.
Remember: the more leverage you use, the less“breathing room” you have for the market to move before a margin call.
While learning technical analysis, fundamentalanalysis building a strategy and trading psychology are important, the biggest factor on whetheryou succeed as a trader is making sure you capitalize your account sufficiently and tradethat capital with smart leverage.
A common mistake is buying/selling on unfoundedtips or rumors.
Everyone, myself included, probably made thismistake at one point or another in their trading or investing career.
You may hear your friends or colleagues talkingabout a stock/ a currency pair/ a cryptocurrency that will skyrocket and you instantly jointhe crowd.
Or you see an investment guru on tv or socialmedia who recommend a specific stock as a must-buy and you immediately follow his advice.
Or you read on a forum that the non-farm payrollswill be released lower than expected and you short the euro/usd.
We’ve all made this type of mistake, ofbuying/selling on unfounded tips or rumors.
The smart thing is to do your own homework.
Make sure you “research, analyze, so thatyou know what you are buying or selling and why.
Next time you're tempted to buy based on atip or a rumor, don't do so until you've got all the facts and are comfortable with theinformation researched.
Trading without a stop loss is probably thebiggest mistake traders make.
Many new traders hate the stop loss ordersbecause very often, after they are stopped out of a trade, the price soon comes backto a point where the trade could have exited with a profit.
So, the next trades they ignore the sl ordersand set only take profit orders.
And this strategy could work.
Until one day, when the price never comesback to manageable losses, and just keeps going against them.
A good example of a group of traders who weretrading without a stop loss and who ended up wishing they had used one were the traderslong of the Swiss franc when the Swiss national bank effectively announced a massive devaluation.
The price flew against them for several minutesand many traders lost their accounts in a flash.
So, you should always place a stop loss, orbetter said, a protective stop, at a point where if the price gets there, you would feelwrong about the trade.
The final mistake made by traders is usingtoo many indicators on their charts.
The debate about trading indicators and theirusefulness is probably as old as trading.
Nevertheless, there are numerous misconceptionswhen it comes to understanding and using indicators.
Many traders arbitrarily add indicator afterindicator to their charts because they believe that the more indicators they have, the moreefficient they can filter out “bad” and misleading trading signals.
This approach usually results in bad resultswhen traders suddenly feel overwhelmed by the amount of information they have to process.
Besides that, another major mistake is thefact that traders often combine indicators that essentially provide the same information.
Furthermore, traders rely on trend-indicatorswhen price is range-bound, or try to use oscillators, when markets are trending.
Remember, the difference between an amateurand a professional trader is not necessarily defined by the indicators they choose or whichentry signals they follow, but how they approach trading in general.
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Until next time.