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Finance > Currency Trading > Five New Trader Pitfalls You Can Avoid
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Article rating : 0.00, 0 votes. Author : John Forman
So you want to trade, eh? Or have you already started? What drew you to it? Was
it the huge profit potential? Maybe it was the excitement. Or perhaps you love the challenge of solving a big, multi-dimensional puzzle.
Whatever the case, there's certainly a number of things that make trading the
financial markets worthwhile. At the same time, however, there are some huge
obstacles along the path to profits and success. This article discusses
five ways to avoid trouble in the markets. They will help protect your capital
and increase your chances of success. Ready? Let's jump right in!
#1 Avoid Errors in Order Entry!
The quickest way to lose money in the markets is to make mistakes when you place
your orders. Fortunately, this is something very easy to fix. PAY ATTENTION!
It's as simple as that. Every trade entry system you could use has some kind of
order confirmation mechanism. Take the extra two seconds and check to make sure
everything is correct. I can assure you this will save you money.
#2 Use Only Risk Capital!
New traders often get so caught up in the excitement and anticipation of trading
that they let common sense go on holiday and trade with money they have no
business putting at risk. Any money you put in to the markets must be risk
capital, money you can afford to lose and not impact your basic financial
situation. It's hard enough to be successful as a fledgling trader. You do not
want the added pressure of having to make money and/or not being able to afford
losing it.
#3 Start With Enough Capital!
It takes money to make money. You've heard that often enough. Accounts that are
too small can be a major hindrance to trading success. They suffer from
transactions costs that are proportionally higher than is the case for larger
accounts, which hinders returns. They also restrict the number of positions you
can have at one time, which means you cannot always take good trades that come
along and you may not be able to diversify as you should.
#4 Trade Small!
When in doubt, put less money at risk. There is no more swift way to lose huge
chunks of money than to trade too big. Your trading size should be determined by
your account size based on the risk being taken. If you are risking an amount of
your account that potentially puts your long-term ability to keep trading in
question, your position is too big. If this means you cannot trade certain
instruments, find something else.
#5 Avoid Trading Too Often!
Trading can be fun, exciting, and profitable. It is also an intermittent reward
system, like gambling. That means it's easy to get hooked and in a dangerous
cycle. The feeling you have after a winning trade will make you want to do it
again. This can lead to sloppy trading. Some traders do not make any additional
trades the same day as they close out a position. That helps get some time and
space to ensure good decision-making based on their system, not their emotions.
Do whatever you must to ensure you always trade in control.
New traders are prone to mistakes as they learn how to be successful. If you
take the advice of this article, you should be able to prevent unnecessarily
losing money because of things you could have avoided. Learn from the mistakes
of others. It will make you more successful in the long run and
make the path you take a bit smoother.
Copyright © 2006 by Anduril, Inc.
Permission is granted to reproduce this article so long as the full text and
resource/author section, including all links, are included.
John Forman is author of The Essentials of Trading (Wiley - April 2006), and a near 20 year veteran of trading and analyzing the markets. Visit Anduril Analytics to learn more about his trading, market analysis, and research activities.
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