Canadian author Lucy Maud Montgomery, once said: “Isn't it nice to think that tomorrow is a new day with no mistakes in it yet?”
Since mistakes costs us money, the “yet” part is something that got us itching.
As such, let’s not get complacent and take a good look at 5 pesky mistakes which are stopping many traders out there from becoming more profitable:
1 Trading multiple correlated instruments
By now you’ve probably noticed how companies operating within the same industries and sectors will often move together, and the same goes for certain forex pairs.
This causes a problem as many novice traders who buy correlated instruments seem to be under the impression that they are diversifying and reducing their risk when in fact they are actually increasing it.
Positively correlated instruments will increase your risk in trading given that they will often move in sync.
2 Focusing on too many markets
The flipside to our previous point was this common mistake.
Just because your broker offers you access to trade in all available markets that doesn’t mean you should.
Many traders will become tired, confused, and frustrated simply due to trying to keep track of too many markets when what they should probably be doing is trying to become a market specialist or, at the very list, scaling it back.
3 Failing to understand Leverage
If there’s ever a double-edged sword in trading, that’s leverage
Leverage
In terms of trading, leverage can be characterized as a loan, supplied by a broker, which allows a trader to be able to control a relatively large amount of money with a significantly lesser initial investment. As such, leverage effectively allows traders to make a much higher return on investment compared to trading without any leverage. Traders use leverage to make a profit from smaller movements in certain assets, such as stocks and foreign exchange.Given such small movements in these instruments at times, trading without any leverage could potentially diminish profits. As a result, traders routinely rely on leverage to make financial trading viable. As a rule of thumb, the higher the fluctuation of an instrument, the larger the potential leverage offered by brokers. The most common market where leverage is utilized is in the forex market, as most currency fluctuations are relatively tiny and encompass fractions of units. How to Trade with LeverageThere is also a lot of variation with trading leverage in each account, which can often vary from 1:50 to 1:200 on most forex brokers. However, many brokers can offer up to 1:500 leverage, meaning for every 1 unit of currency deposited by the trader, they can control up to 500 units of that same currency. As an example, if a trader was to deposit $1000 into a forex broker offering 500:1 leverage, it would mean the trader could control up to five hundred times their initial outlay, i.e. half a million dollars. By extension, if an investor using a 1:200 leveraged account, was trading with $2000, it means they would be actually controlling $400,000, i.e. borrowing an additional $398,000 from the broker. Assuming this investment rises to $402,000 and the trader closes their trade, it means they would have achieved a 100% ROI by pocketing $2000. Using leverage, the potential for profit is clear to see. However, leverage also opens up the possibility of losing a much greater amount of their capital. If the value of the asset turned against the trader, they could have lost their entire investment and more.
In terms of trading, leverage can be characterized as a loan, supplied by a broker, which allows a trader to be able to control a relatively large amount of money with a significantly lesser initial investment. As such, leverage effectively allows traders to make a much higher return on investment compared to trading without any leverage. Traders use leverage to make a profit from smaller movements in certain assets, such as stocks and foreign exchange.Given such small movements in these instruments at times, trading without any leverage could potentially diminish profits. As a result, traders routinely rely on leverage to make financial trading viable. As a rule of thumb, the higher the fluctuation of an instrument, the larger the potential leverage offered by brokers. The most common market where leverage is utilized is in the forex market, as most currency fluctuations are relatively tiny and encompass fractions of units. How to Trade with LeverageThere is also a lot of variation with trading leverage in each account, which can often vary from 1:50 to 1:200 on most forex brokers. However, many brokers can offer up to 1:500 leverage, meaning for every 1 unit of currency deposited by the trader, they can control up to 500 units of that same currency. As an example, if a trader was to deposit $1000 into a forex broker offering 500:1 leverage, it would mean the trader could control up to five hundred times their initial outlay, i.e. half a million dollars. By extension, if an investor using a 1:200 leveraged account, was trading with $2000, it means they would be actually controlling $400,000, i.e. borrowing an additional $398,000 from the broker. Assuming this investment rises to $402,000 and the trader closes their trade, it means they would have achieved a 100% ROI by pocketing $2000. Using leverage, the potential for profit is clear to see. However, leverage also opens up the possibility of losing a much greater amount of their capital. If the value of the asset turned against the trader, they could have lost their entire investment and more.
Read this Term. It can dazzle new investors with a potential massive boost in returns, or much like in a computer game, it can be “game over” due to how it exacerbates their losses.
To become successful at trading it is essential that one understands the benefits and pitfalls of trading with leverage so that he or she can start working with just the right amount.
4 Buying into the rumor
We’ve all done this before.
Someone you know, a TV pundit, or some random guy on a webpage/social network you use has a hot tip. Suddenly, everyone seems to forget about doing their own homework and hop on the bandwagon.
Unfounded tips are easy to find online these days but more often than not, they’ll turn into a mistake for those who blindly follow them.
If you are buying into something you better know both your trade and what you're buying inside out.
5 Changing it up too much
When it comes to trading, there are winning streaks which feel amazing, and there are losing streaks which try to bring you down.
However, one shouldn’t give up on a perfectly valid strategy based upon the first signs of adversity. 2 or 3 losses shouldn’t be making you rethink your whole formula, especially if you are doing some long-term thinking, so do not give up on your strategy on its early stages.
Wrapping up
Traders often remember and occasionally record their good trades, the ones in which they made massive profit, but then there are some days in which everything seems to go about the wrong way.
This list features 5 common mistakes traders make weather in the stock market
Stock Market
A stock or equity market is defined as the aggregation of buyers and sellers of stocks, which reflect ownership claims on businesses.These may also include securities listed on a public stock exchange, as well as stock that is only traded privately. Common examples of this include shares of private companies that are sold to investors through equity crowdfunding platforms.Unlike the past, the stock market has grown to include a more mature retail market, though nearly all investment is still done through brokers and electronic trading platforms. What Makes Up the Global Stock Market?The stock market itself consists of a global network of stock exchanges, which most developed countries have access to. Presently there are over 60 such exchanges with a total market capitalization of over $70 trillion.The largest stock markets are the United States, Japan, and Great Britain, with numerous other exchanges worldwide following behind. Retail investors rely on the stock market for all their equity or share trading needs. This function has been assumed by online stock brokers, which have largely replaced the need for dealing with popularized trading floors for retail trading needs.A stock broker is an agent or intermediary between investors and the stock market. Stock brokers play an important role in online trading and have grown in scale and coverage in recent years.Stock brokers historically have charged for transactions and other services though crucially have shifted to commission-less transactions over the past few years after being disrupted by fintechs and other companies.
A stock or equity market is defined as the aggregation of buyers and sellers of stocks, which reflect ownership claims on businesses.These may also include securities listed on a public stock exchange, as well as stock that is only traded privately. Common examples of this include shares of private companies that are sold to investors through equity crowdfunding platforms.Unlike the past, the stock market has grown to include a more mature retail market, though nearly all investment is still done through brokers and electronic trading platforms. What Makes Up the Global Stock Market?The stock market itself consists of a global network of stock exchanges, which most developed countries have access to. Presently there are over 60 such exchanges with a total market capitalization of over $70 trillion.The largest stock markets are the United States, Japan, and Great Britain, with numerous other exchanges worldwide following behind. Retail investors rely on the stock market for all their equity or share trading needs. This function has been assumed by online stock brokers, which have largely replaced the need for dealing with popularized trading floors for retail trading needs.A stock broker is an agent or intermediary between investors and the stock market. Stock brokers play an important role in online trading and have grown in scale and coverage in recent years.Stock brokers historically have charged for transactions and other services though crucially have shifted to commission-less transactions over the past few years after being disrupted by fintechs and other companies.
Read this Term, in forex, or when dealing with cryptocurrency.
If you recognize any of them, be sure to address it properly.
Afterall, and to paraphrase Confucius, if you make a mistake and fail to correct it, then that is surely a mistake.
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