Avoiding failures in Financial Trading
The American President Donald trump in his bestselling book “The art of the deal” discussed ways of becoming successful in business. One of the important ideas is to “Protect the downside,the upside will take care of itself”. Even in trading, that is a worthy lesson to learn. Interestingly, more than the money involved, the emotions involved drive many loss making trades. Like we said earlier, sitting in front of the computer screens for hours during a trade is trivial, If we had made a correct trading plan. But many have their own ways to trade in the financial markets.
Many traders, even professionals sometimes will lose money by doing very common mistakes which should be avoided in the share market. In this article we will see some of the commonest mistakes traders do in financial markets and how to avoid it.
It is very important that we have the correct perspective about trading. A trade is an isolated event which is a part of the process. This process involves analysing and planning before coming to the actual execution of the trade. Though most people know these things, the moment they place a trade, all the intelligence vanishes and emotions take the driver’s seat.
If a trader losses in the market, the best way is to accept it and live with it, but many driven by emotion will go for another trade, with the quest of breaking even. This is where the trouble starts. Losses are indispensable in the financial market and a trader has to be aware of it and make plans about it instead of overtrading. Jack bogle says “Time is your friend, Impulse is your enemy”. We should avoid being impulse in our trades and be rational at all times.
Trading involves risks, if you want to make gains, you got to take risks. The commonest mistake we see and do in a financial mistake is violating or risk tolerance level. Two emotions which drive the market namely greed an fear contribute to this behaviour.
In financial markets, nobody wants to lose money, but almost everybody does that. Loss is an expected outcome in a financial market and people never seem to accept the fact. We have to build a strong trading mindset. We should keep in mind our financial situation and constraints while planning our risk.
While trading in stocks, it is advised to keep our trading charts simple, instead of populating our charts with myriad indicators and lines, we should learn, practice and master a strategy which can be and adhered to at all times. While drawing a chart, importance must be giving to simplicity and comprehensibility. A trading setup must make sense. A common misconception is that complex charts make a profitable trading setup. But in reality, simpler charts with adequate analysis are the most efficient weapons in your trading battle.
These are the most commonly made financial trading mistakes. These are committed because of technical deficiencies and emotional incompetence. The suggested way out is to practice and stick around your trading discipline. Doing demo trades and applying your trading setups and mindsets will certainly help develop a correct trading mentality.