Trading Pitfalls and Common Mistakes

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Avoiding Trading Blunders

Q.: I have just been wiped out for the second time. Am I some kind of trading freak?

A: It is no secret that CFD traders (like all derivatives) is a high risk activity and CFD traders lose.

In fact, even the most successful traders are likely to have failed at some point in their career and wiped out their account. Most traders end up on the losing side because they do not understand the nature of the decision-making process, which should be based on rational price action analysis versus emotional, irrational reactions to price action. For each decision you take there should be a reason. If fear starts gripping you it gets more difficult to think rationally and take the next technical signal. Traders will eventually become confused and feel guilty from indecision. Do successful traders buy an education with the mistakes they make?

Successful trader learn from their mistakes and refine the decision-making process, keep on trying and never give up, while losers will continue committing the same mistakes over and over again. If traders cannot accept the losses that go with trading, they do not deserve the profits. Remember failure is the best way to learn a lesson only when a student is prepared to learn. If the student has forgotten previous lessons, or the dog ate his homework, he is not ready. A positive attitude has positive expectations of future events and normally precedes the success it creates.

Another reason for failure is that traders fail to understand the real nature of the markets. They do not understand where prices will move, why they will move, and what it is that makes them move.

Q.: Why do I keep making such stupid mistakes?! What can I do to avoid them?

A: To mention a few -:

1. eagerness to play
2. feel you must play
3. impatience
4. greed
5. boredom
6. failure to follow stop loss (greed)
7. failure to follow a system that works for you (impatience)
8. (my favourite stupid) meaning to "click" cancel but accidentally clicking "buy"

To avoid these pitfalls make a written record of at least every cfd trade you do and maybe also the ones you don't do. Record -:

1. why you did it
2. why did you think the risk/reward was favourable
3. what you were thinking at the time
4. your stop loss
5. if you subsequently moved your stop loss and why
6. where you took profit and why
7. how much you made/lost

After that go back over your written records and you will hopefully see a couple of things to avoid repeating. Writing it all down tends to avoid 'wooly' thinking. Patience and discipline are key to avoiding most of the mistakes. It might not sound right, but making a mistake is not the same as losing money on a trade.

 ...Continues here - Advisory Brokers and Investment Funds