Three Mistakes Often Made By New Traders

Jumping into a Position to quickly 
Many new traders are so eager to make a quick buck and put what they have learned into practice that they jump into positions without fully thinking things through. Often they might see a piece of news in the media about a particular company and then decide to trade solely based on that info. For example better than expected quarterly reports do not necessarily mean that the company’s share price will sky rocketed. As there may be other factors at play, for example positive economic indicators or strong performance in that particular sector may lead to the markets already pricing in such expectations. Do thorough research before opening a position and make sure you could justify why you opened that position if someone asked. 

Exiting to Soon or Holding onto a position too long  
Many traders open a position and when the see the position move slightly against them they immediately close it. This can often lead to them taking a loss when if they had kept their nerve there position would have come good. Conversely many newer traders also hold onto a losing a position for far too long hoping that the position will come good. Racking up huge losses in the process. In the first case the individual is being far too risk adverse and in the second case the person is engaging in something more akin to gambling than trading. Every time you enter a position and the market moves against you should ask your self the following questions, Where your reasons for opening the position good enough?, Are the reasons why you opened the position still valid?, Are you acting rationally?. If the answer to any of the questions is no, you should close that particular position.  

Chasing Losses 
Taking a loss hurts and its completely natural to want to make your money back. But it is a very bad idea to do this by increasing the size of your positions and trading more aggressively to make back your money. When your experiencing a losing streak you will probably not be in the right frame of mind to make important decisions. The majority of my trading income used to come from trading relatively short term FTSE100 movements if three trades went against me in a row, I would quit my trading activities for that particular day. While pretty drastic I felt this was good safety measure which prevented me from desperately chasing after losses. Such management techniques can be extremely useful and can save you a lot of money.


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