Online trading of financial instruments offered a whole range of tools and information for traders. The trading processes became fast and simple and traders have developed new strategies and systems for profiting the market. But still most online traders, especially beginners, lose their money. Here are some common trading mistakes that online traders make.
1. Trading without a Strategy
Most traders just look to change all opportunities into profit. They won’t analyze stocks or other trading instruments, won’t respect market sentiments and won’t understand their limitations. They trade, trade, trade and lose.
2. Complex Trading Strategies
Most traders simply trust their trading software tools, chart patterns and indicators for making trading decisions. They try to make simple strategies complex by incorporating other strategies, ending up in nowhere.
3. Under-Capitalized Accounts
For selling something for profit there should be enough capital to buy it. Many traders trade extensively on their margin to magnify their profit, ignoring the fact that trading on leverage can also evaporate their capital.
4. Blindly Trusting Trading Software Platforms
Trading platforms with a variety of charting and technical analysis tools provide excellent support for traders of all kinds. But they only help to find opportunities but it is the trader who has to analyze whether he can convert the opportunity to profit.
5. Trading Insufficient or More Than Sufficient Stocks
Position sizing is a very important factor in determining the success of a trade. One must size their orders with respect to their trading style, product traded, expected return, entry and exit point, and market performance.
6. Avoiding Limit Orders and Stop Losses
Both limit orders and stop loss orders are considered as the most powerful risk minimizing tools. Many online traders risk their portfolio by not employing these tools or by delaying their implementation.
7. Eagerness to Adapt to New Strategies
New ‘Hot Trading Strategies’ are introduced almost on a daily basis. Many online traders are too keen to frequently change their trading strategies in search of better profits or lower risk. Many times they forget that ‘they have to keep the basics right’.
8. Ignoring Fees and Costs involved in trading
Online trading of financial instruments involve many fees, brokerage fees, ECN fees, trading platform usage fee, account checking fee, market access fee, and more. Costs may differ with type of account, account size, brokerage firm, markets/products trading and leverage used.
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