If you’re new to trading then the financial markets can be scary. Not having the correct measures in place could lead to trading losses! There are a number of mistakes traders make that can ultimately end up costing them.
But don’t worry. We’ve listed them for you and included a few tips on how you can avoid these errors when you start trading.
- Make sure you have a plan before you trade
Before you open a position on the markets, make sure you have a plan in place. Creating a plan will help you to plan out your goals and objectives. Having the desired outcome in mind will also help you stay on top of your trades, and most importantly stop you from trading with emotion. Don’t copy a trading plan that is already out there on the internet. Create one that is specifically tailored to you, your goals and what you want to trade.
Want to create a plan right now? No problem, read our handy guide on creating an effective trading plan right here.
2. You’ve created a plan, that’s great! Make sure you stick to it
Once you start trading, it can be easy to veer away from the initial trading plan that you created. This is one of the most common mistakes you could make. Therefore, make sure you are regularly checking your trading plan before every position opens, and closes. This will help you identify where you are going wrong, and can help you move forward.
3. Always research the market before you trade
Both new and experienced traders sometimes make the mistake of opening positions on the financial markets based on a hunch or gut feeling. While this can lead to profit, you should still research and conduct market analysis before you execute a trade. Understanding the market you want to trade can prepare you for unexpected market conditions. For example, knowing if a particular asset is subject to large amounts of volatility.
4. Don’t let your emotions run the show
Trading can be an emotional rollercoaster, as you experience excitement when you gain profits and frustration when you face a trading loss. This could potentially be fatal if emotion affects your decision making. So, avoid the snap judgements, it’s time to put emotions on hold and remain objective while trading. Trading psychology plays a fundamental role in any trading strategy.
5. Understand how the risk to reward ratio works
Before opening a trading position you should always have an idea of how much capital you are willing to risk and lose if the market moves against you. The risk-to-reward ratio should be taken into account, as you will be able to determine if the possible end profit is worth the risk of losing capital.
6. Do you know what trading on margin is?
Trading on margin involves placing a small initial deposit which will give you full exposure just like if you went to open the full value of the position. When trading on margin, some traders forget that even though profits can be magnified, so can losses.
7. Remember to place your stop losses — risk management is key!
Experiencing a loss while trading is inevitable. You can’t guarantee that a market will move in the direction you want it to, especially when something unexpected happens. However, setting stops will minimise trading losses as much as possible.
8. Don’t have unrealistic expectations
Don’t get carried away when deciding on your trading goals. Manage your expectations before you place a trade on the markets. A common error traders make is expecting profitable outcomes for every position they open; this is unrealistic especially when the markets are volatile, and trades can move against your favour.
Check out more of our trading insights and guides over on our Website.
Want to try a free demo trading account with Eightcap?
Every trader, no matter how experienced they are, will undoubtedly make a mistake at some point during their trading journey. This guide has pointed out the common mistakes that traders tend to make so that you know what to prepare for before opening a position on the financial markets. Before you buy or sell an asset, why not practise with our free demo account? Open positions with virtual money and gain exposure to real-time market conditions.
Trading on margin is high risk.
All times are AEST.
Trading on margin is high risk.
All times are AEST.
