Top Mistakes You Should Avoid as a Trader – Introduction
While trading is an exciting business to be in, we have seen many people make simple mistakes that have cost them dearie. A common problem with the industry is that you can make good money only for you to lose it within a single trade. This happens to people who are both getting started and those who are highly qualified.
A good example of this is Bill Ackman. Bill is one of the most respected hedge fund managers in the world. At his peak, his firm managed more than $15 billion. Then, three years ago he invested in a company called Valeant Pharmaceuticals. Then, Valeant was one of the most beloved companies in Wall Street. He invested into the company when the stock was trading at $140. It then moved to above $250. Then, problems started to arise and the stock started going down. Ultimately, the stock fell to less than $10 and when he exited, he had lost more than $4 billion.
Another example was his bet on Herbalife. Herbalife is a company that manufacturers food supplements and uses a direct selling model. He accused the company of being a pyramid scheme and shorted it. His campaign led to a large investigation by the SEC. When the decision came, the company was asked to pay more than $200 million. It was also asked to change its business practices. Ultimately, Bill lost more than $1 billion.
As a trader, you too can make these decisions that will end up affecting your trading. First, you should always be ready to exit trades that are making losses. In this, you should always realize that all traders make mistakes. The problem of holding on to your mistakes is that it could cost you dearie.
Second, to prevent the first problem from happening, you should always have a stop loss for your trades. A stop loss is a tool that stops your trades when a certain level is reached. For example, if you have bought the EUR/USD pair at 1.1200, your hope is that the price will move up. If the price moves lower to say 1.1150, you can place a stop loss at 1.1145. This will always ensure that you don’t make more losses than you can handle.
Third, you should always avoid burnout. This is a situation where you spend a lot of time staring at charts that you forget about the benefits of taking a rest. When you are in a situation of burnout, you will likely make bad decisions. A good way to address this issue is by proper scheduling. This is a process where you set a specific period of time where you will be trading.
Fourth, you should always make trades based on the data and your signals. It is always wrong to open trades that you can’t justify the reasons. A problem we see with many traders is when they open trades without having a reason to do so. This is a mistake that you should always avoid. Instead, you should always ensure that all of your trades are justified by both fundamental and technical reasons.