Trading as a career is as dangerous as it sounds. You are in this for the money, to make cash quick and go party with international models in London or Monte Carlo. But when you get on that stock market roller coaster, you learn that reality is very different. Many rookie traders make common mistakes before they understand how to trade correctly. Some of which will be highlighted here.
Mixing up Bullion and Currencies
This one single mistake can cause your trading account to be drained by brokerage fees very quickly! Currency trading has no connection to bullion or silver trading at all whatsoever! Some novice traders think that you can make money by buying the Euro against the US dollar. That is trading in currencies, which has nothing to with bullion!
Buying And Selling at The Wrong Time
This mistake often leads to novice traders executing trades too early or too late. They do not understand how trends work, and they also lack knowledge about what timeframes they should trade on.
Not Having an Exit Plan
If you are having a bad day/week/ month, you need to think ahead of when you can shift your capital into another venture that you might enjoy more. You will feel much happier if, during a losing spell, you have already thought about an exit plan instead of being forced into concluding that all your hard work is for nothing.
Not Using a Stop Loss
Imagine buying a stock and seeing the share price increase nicely. You feel like you are on top of the world, but then it just keeps going up and up and never comes back to Earth! Of course, you will be tempted to sell at a higher price than what you bought for, but this is an amateur mistake that novice traders often make.
Professional traders use stop losses to avoid getting caught in such scenarios where their emotions get the better of them. They know when to sell their stocks before they lose all their capital. If you do not have a stop-loss plan in place, your capital will eventually be wiped out by brokerage fees if you keep buying more shares every time the share price goes up. Use this link to learn more about it.
Not Using a Trailing Stop
It is the same as a stop loss, but it will not force you to sell your shares at a loss (if the market crashes). Let’s say that you bought some shares and they were priced at 20p each. It was a fantastic day, and the share price went up to 50p after three hours of trading. However, you know from common sense and past experiences that things can turn around pretty quickly in this game. Therefore, even if the share price keeps going up, you would set your trailing stop-loss plan to 30p just in case the market turns against you for any reason. You are hoping that it won’t go down because you would sell off your 50p shares for 30p! That’s tough to take, but it is better than losing all of your capital.
Trading On a Low Leverage Or High Leverage Account
If you are trading on a low leveraged account, you could have difficulty achieving significant returns because the brokerage fees eat away at too high a percentage from your gains. It results in novice traders being put off because they will not achieve their dreams based on accounts where risk/reward is stacked against them. In contrast, if your account has a high level of leverage, then you can bankrupt very quickly if things turn sour. It only takes one bad day, and you could be out of business forever, so do not play with fire!
Not Understanding Stop Buys/Sells
Some novice traders will think that if their share price hits a certain level, they will sell there. However, by the time you place your stop buy or sell order, the market may have moved against you for whatever reason, so you might not even get out of your trade at the price you wanted.