How to avoid common trading mistakes

trading mistakes

Errors are made by not incorporating appropriate risk management to the volume of the account. These are common and simple trading mistakes that traders commit despite knowing them; they keep ignoring them. Most traders know the importance of incorporating risk management in their strategy. It must correspond with the size of the account, and correspond to the risk of their investor profile. They are easy trading mistakes to avoid, and yet they are significant since, in many cases, they are responsible for a large number of traders not being able to achieve success. 

Identify the risk of loss

First, you have to keep things simple, avoid complications, and be effective.

Do not fool yourself. The worst enemy in the markets is ourselves. So: We have to identify what risk of loss we can run without damaging our economy. We need to define what risk profile as an investor we are and not what we want to be. And once defined, work with financial assets that adjust to that risk profile. 

Choose the financial assets

Carry out a real and not fictitious investor project. We have to demand a return on the investment, which is in line with the capital invested, the assets chosen at risk and the period that we demand from that investment. Know the actors involved in the market and what role they play. Any professional who wants to carry out his activity in a specific sector must know the sector in depth. 

The idea is to find a source of return and understand how it behaves in terms of return and risk in different market contexts. It is convenient to study the profitability and risk both in absolute terms, in relative terms and in terms of risk.

Set a loss limit per operation

Once the sources of return that we are going to include in the portfolio have been decided, the next step is to find an optimal way to combine them. 

We need to set a loss limit per operation, day, week, month and the total of the account. At this point, the appropriate % per trade must be between 0.8% and 3%. The smaller the loss, the more chance we have of succeeding. We should not deposit 100% that we have decided we are willing to lose at once. Diversifying in this aspect can help us to return to the adventure in case of failure in the first attempt. Choose a leverage and input volume appropriate to the amount of the account and not to the benefits we want to obtain. 

Remember you have to get small losses and big profits, therefore, detect trends and work in favour of them by moving profit.

Work the stop and profit in temporary terms that are in accordance with our chosen investor style. We would have to close a maximum of 4/6 candles. That is, if we have chosen we are a 15-minute trader, the operations would have to be completed at 4/6 candles; therefore, a maximum of 1 h/1.5 h.

Take into account the risk/benefit binomial in the entries. We don’t always have to be invested in the markets. There are times when the risk is greater than the benefit it can bring. Therefore, detecting when to be in, when to close positions and especially when should not enter, will avoid a lot of risk and trading mistakes.

All the aforementioned is very simple to apply, and most investors know it. However, many of them do not incorporate it. Just keep it simple, avoid complications and be effective. All of this will bring you closer to success than failure.

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