Trading in financial products or derivatives is risky and should be undertaken with proper knowledge, research, understanding and know how. There are several mistakes that a trader makes during the course of his trading and tries to improve and understand the market better with time..Below we discuss some of the basic mistakes in trading-
RISK REWARD RATIO
There is a tendency in trading community to sell when the market is depressed and buy when the market is making newer highs. A smart trader should always evaluate the risk reward ratio of the product and should try to buy cheap and sell at upper levels. We should never chase the market and buy or sell when there is value in that particular product.
We should always remember that valuation drives prices and not vice versa.
PREDICTING PRICE MOVEMENTS
There is a problem to find bottom or highs in the market. A smart trader should never try to find bottom but instead wait for a reversal pattern to form to enter a particular product. Chasing is risky. We should never get biased about price movements as timing the market can be a loss making strategy. We should wait for the right opportunity to enter the market and make profits out of the resultant situation.
A trader should try and avoid themselves by having a pre determined mind set of being a bull or a bear. A trader should be flexible in its approach and should buy or sell by understanding the market and not by his categorization of being only long or being only short in his approach. One should wait for ideal circumstances in the market and wait for technical conditions to be favorable to buy or sell a particular product.
BEING MECHANICAL IN APPROACH
A large percentage of traders today use the online trading platforms that provide charting, research and back testing tools. Technology should be used for keeping records and analyzing but it can never be a substitute for your brain. One should always remember that charts and data help you in trading but it should not become the only barometer for futures trading. We should always remember that humans created technology, technology did not create humans!
A large number of traders have a tendency for staying in a trade for too long or exiting too early. Timing a trade is always very difficult but we should develop an ability to lock in a profit or cut your losses. Greed should not drive your trading sensibilities. Emerging traders often take good decisions but greed for higher returns sometimes make a good decision bad. We should be practical and sensible in our approach and emotions should never govern our trading decisions and strategies.