Some traders make consistent profits. What’s their secret and how do they do it?
The real question we should be asking is – what is it that they don’t do?
Here are some of the more common mistakes our traders tell us they made so you can avoid them.
Please keep in mind that what is presented is for informational purposes and should not be regarded as a recommendation or advice.
Five Mistakes of Trading and Their Solutions
- Mistake 1 – Lack of Methodology
- Mistake 2 – Lack of Discipline
- Mistake 3 – Unrealistic Expectations
- Mistake 4 – Lack of Patience
- Mistake 5 – Lack of Money Management
Lack of Methodology
A consistently successful trader always has a defined trading methodology, which simply means a clear and concise way of looking at markets. Guessing or going by gut instinct won’t work in the long run.
If you don’t have a defined trading methodology then you won’t know what constitutes a buy or sell signal.
The solution is easy. Write down your methodology. Define which analytical tools you will use, whether it’s Trading Central Analysis levels or any other indicators. Also take the time to define what constitutes a buy signal, a sell signal, your stiop loss and instructions on exiting a position.
Lack of Discipline
You must have the discipline to follow your method.
Success often comes to those who consistently apply a proven methodology.
Define a trading methodology that works best for you and stick to it!
It is possible to experience above average returns trading your own account. But it is difficult to do it without taking above average risk.
Did you know that the average hedge fund return in 2014 was 2.88%?
These goals may not be flashy but they are realistic and if you can learn to live with them and achieve them, you may increase your chances of being a profitable trader.
Lack of Pateince
Markets trend only 20-30% of the time. the other 70-80% of the time the markets are not trending in one clear direction.
All too often because trading is inherently exciting, it’s easy to feel like you are missing the party if you do not trade a lot. However, over trading may see you make trades of lesser quality.
Lack of Money Mangement
Professional traders tend to limit their margin on any given position to 1-5% of their portfolio. If we apply this rule, then for every $5,000 we have in a trading account, we will only risk $50-$250 on any one trade.
Many traders begin to trade without sufficient capital in their trading account to cover the markets they choose.
If you have a small trading account, then you must consider small trades. You could accomplish this by trading fewer contracts or trading mini lots.
One of the keys to becoming a consistently successful trader is longevity.
- Be disciplined. Trade the facts not the emotions.
- Be realistic and not greedy.
- Use stop loss and take profit rates to manage risk.
- Make use of limit orders and price alerts to enter the market.
- Continue your education.