Three Common Trading Mistakes

Here is a list of three things you must not do when trading.

1. Do not trade using money you can not afford to lose.

One of the greatest obstacles to successful trading is using money that you really can’t afford to lose. Examples of this would be money that is supposed to be used to pay the mortgage, bills, or your child’s education. This is sometimes referred to as “trading with scared money” for a good reason. Ultimately what happens is that when you know in the back of your mind that you are risking the rent money, you trade out of fear and emotion not logic.

2. The need to be “Sure”.

We all have the need to make sure that the trade we want to make is going to be a winner. Therefore we look for signs that will give us confirmation of that. This can come in several forms. Some traders will get opinions from friends, family, or just about anyone who will listen. Others will wait for 5 out of 5 technical indicators to give the go ahead.

All of these are okay but sometimes what happens is you actually convince yourself out of the trade. It then takes off without you and you are left doing the “I should have” dance without a partner.

The thing to keep in mind is that there can be no absolute certainty in any given trade. All we ever can do is take an educated risk. I always say I have a 50% chance that I am right.

3. Spending your profits before you bank them.

Nothing is more exciting then getting into a trade that takes off and puts you into a highly profitable situation. This can cause major problems however, because this type of trade puts you in a highly euphoric state and leads to daydreaming about the huge profits still to come. You say “Wow I’m already up 15% in two days; I’ll be up 50% in a week and probably double my money in a month.” Then the next thing that happens is you are deciding on the new car you are going to buy or perhaps planning early retirement. Know what I mean?

Don't get caught up in the daydream and high hopes. This causes you to hang on, or worst yet add to your position as the market sells off and sucks up your profits because you have convinced yourself of the eventual outcome. You are denying the reality of the situation.

The remedy for this is to know where and how you will take profits once you enter the trade, and follow through with the plan. Remember the market will only go up as long as it wants to and never as high as you want it to.

By: Sir Douglas

Article Directory: http://www.articledashboard.com

I am a full time forex trader. I am writing a series of short articles at the request of another trader. I am told this is called giving back, and I hoe you will get something out of it. Please let me know if something I have submitted helps you.