5 Simple Trading Mistakes to Avoid Today – Introduction
In trading, we all make mistakes. From beginners to experienced investors, we all make mistakes. Last week, prominent activist investor, Bill Ackman sold his remaining stake at Valeant Pharmaceuticals at $11 per share. He had bought it for $165 and at its peak was worth more than $250. In his recent letter to investors, Warren Buffet highlighted his multibillion dollar mistakes. This is an indication that no one in the trading world is perfect. As a trader, some of the mistakes you make can easily be avoided.
Letting a bad trade run
In 2015, Citron Research, an investment analyst published a report comparing Valeant to Enron. This led the shares to fall by 40%. Almost two years later, the company’s shares are now trading at just $11. At this time, Bill Ackman was the biggest shareholder. He got to the board and replaced the previous CEO. At the same time, he continued to add to his position hoping that the shares would ultimately recover. They didn’t and he sold them for peanuts, losing almost $3 billion. The problem he did was to let a bad trade run for so long in the expectation that the stock would recover. Traders do this as well. They open a trade, it goes south, and instead of exiting, they hold on the loss for too long. This has a few problems such as cost and the time lost in making the trade work. To solve this, have a stop loss in line with your risk profile and don’t shift it.
I have written about this before. Many traders believe that spending their time in front of their trading platforms is in their best interest. As such, they open and close trades within a short period of time. Unfortunately, this is usually a mistake. You should remember that every trade exposes you to some form of risk. As such, you should do your best to open a few trades as possible every day. Personally, I always try to open a maximum of two trades per day.
Many traders want to make so much money within a very short period of time. They don’t want to make less money and let it grow. As such, they open large positions hoping that everything will work out fine. This is a mistake which you must avoid. The fact is that when you have a chance to make so much money, you also have a chance to lose it. Therefore, you should do the best to open small trades. By compounding your little profits, you will ultimately end up with more money than you think. This is also a mistake that Ackman did with his bet on Valeant. He bought a very big stake in one company.
Just doing it
When it comes to trading, it is very important to take time and do due diligence before opening and closing trades. You should not open your trading platform and then open a trade just for the sake of it. Instead, you should do the best you can to do some research and base all the trades you open on a proven factor. For instance, if you want to buy a currency pair, you should ensure that you have reasons for opening the trade.
Trying many assets
This is a mistake many traders do. They want to be jack of all trades by trading so many assets. They want to trade different currency pairs, different commodities, and equities. This is not only brain draining but it is also inefficient. The fact is that you can make money by just trading one currency pair. You don’t need to be an expert in everything. Just focus on one thing and be good at it.