A novice trader, interested in making money on the stock market, sometimes loses money by making bad decisions and simple to eliminate mistakes. If you make even small mistakes, over time they will accumulate and lead to disaster. Check if you have any problems with any of the listed. Put in all your strength to get rid of them from your habits.
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You add to lossy positions.
The first basic mistake made by traders is the inability to distinguish between building positions and adding to losing positions. A popular technique is the so-called scaling in,which consists in dividing the assumed risk into smaller inputs. This is to prevent you from putting all your money at a price that may not be the best option.
Thanks to this, additional transactions can be concluded also if the market temporarily shows negative trends. However, for this approach to become effective, it needs a good plan and a point beyond which your trading idea will lose credibility.
However, do not confuse this way of risk management with the inability to accept losses, which in turn leads to a huge capital squeeze.
You put too much hope in the signals.
If you joined a group of people skipping the education stage and buying a subscription from traders who share their ideas with a wide group of people, then you probably made a mistake. The problem with this approach is that much depends on the reliability of the signal source.
These types of services can be profitable if you are an experienced trader, which may be bothered by the lack of an idea for transactions. Then it reaches to external sources and verifies the information obtained. Own valuable business based on someone else's trade is usually unprofitable. It may allow you to earn money in the short term, but in the long run you will start to blindly follow the leader.
Belief in high competence.
After passing one reliable exchange trading rate, you may have an excessive belief in your own skills, sufficient to earn money on stock trading. Such a belief should be combated as soon as possible. Regardless of the professionalism of the materials you deal with, you can always learn something more.
These are hundreds of hours spent on exploring the next issue. Already know how to use a volume profile? This is good, because you can move on to more advanced methods and get acquainted with a different look at a given issue. If you think you already know everything about the structure of markets, then also learn about macroeconomics and its impact on price.
Predicting the future.
A novice stock trader often claims that the stock market belongs to a kind of guesswork, requiring answers to the question of where the price will go later. If you think so, then you are on the right track to start fighting the market and get frustrated with huge losses. Do not predict the future, just analyze the past, arrange it into a logical whole, so as to understand the market and its last fluctuations.
A powerful financial market is characterized by the fact that no movement on it is accidental. At first glance, absurd movements after careful analysis are manipulation, the proper recognition of which will allow you to find yourself on the right side of the market.
Lack of understanding of liquidity.
Taken out of context, the book's knowledge "claims" that you should invest in highly liquid markets. Unfortunately, most people forget the fact that high liquidity means milder price fluctuations. They can keep you stuck with your position in the market for longer than you intended.
Do not be afraid of moving instruments like cryptocurrencies. Find the asset class that will give you the right ratio of liquidity to average price volatility. This results in a good amount of valuable trading opportunities.
Lack of understanding of the laws of the market.
Currently, the stock market game is popular enough, there are a lot of ads promising quick money to earn, just to buy a guide from one of the alleged investment experts. He touts his method, emphasizes the psychology of trading and puts forward the thesis that it constitutes 90% of the total way. Reality shows that the trader's mentality is a problem of marginal importance.
However, there is a more serious and at the same time simple to solve problem. Almost none of the retail traders have any idea about the market, who in it is capable of moving the price, or why the price is moving. Since the statistical stock trader has become so accustomed to charts that they are synonymous with the market for him, in reality it is only a record of historical price fluctuations. In the large majority of cases, they have nothing to do with the current situation. Hence, the conclusion is simple, cluttering the screen with a huge number of lines that can be arranged in various fancy patterns is simply absurd.
Incorrect selection of position size.
If you can't manage your budget, which is due to unrealistic expectations about possible profits, then this may be another reason why you do not make money on the stock market. This can be confirmed by the number of views of trading videos on YouTube. Materials about the theory of auctions and market mechanics are unlikely to exceed 100,000 visits. An unrealistic video of a twelve-year-old 1,000-fold increased his Forex account in 24 hours was viewed millions of times.
The rise of the Internet has contributed to the non-proliferation of countless materials that talk about motivation and belief in method as a reliable key to success. From a certain perspective, you need faith in order to be able to maintain the regularity of your efforts with a specific goal. However, in the stock market, too much conviction about the success of your actions can have harmful consequences. It may turn out that the less such a belief, the better.
You treat the stock market as gambling.
If you open a position only on the basis of the belief that it will end in a profitable result, then you are a gambler. This is a situation similar to the one in which you observe the dealer's hands and hope that the statistical probability will work in your favor. Then you are not able to be better within the field you are dealing with, because the effects of your actions are determined by happiness.
Most of the so-called experts in the field of the stock market place great emphasis on faith, believing that it is a necessary factor to stick to the established rules. Reality shows that these rules are not valuable at all, they are not adapted to the environment, and the fact that they do not work is blamed on the trader.
If you meet a person offering you a stock market investment course, who emphasizes the mentality in trading, then think about whether such solutions can actually bring any results. Or maybe it's just a scam, where if you don't tell me in its use, all the blame will be put on your lack of discipline.
You bet on faith instead of reason.
Now imagine that using a theoretically working system, you should earn money. In practice, you are in a series of losses, recording one of the failures in a row. Each subsequent losing stock market investment makes you closer and closer to breaking the accepted rules. The reason is very simple – such a strategy could be replaced by a calculation or a coin toss.
Think about it, if historical results don't guarantee future profits, why would simple mathematical calculations on a chart do it? If the defeat occurs once in a row, maybe it will only bring losses? In this way, it's easy to break the rules when experimenting with real money, which can't end well.
No serious rules.
If you want, try toss a coin and try it as a trading strategy. Thus, the strategy will not be less valuable than a series of colorful shapes and lines placed on the chart. Technical indicators, as a rule, are designed to check when there is momentum in the market. Unfortunately, they present a picture from the past, which is often not related to the current situation. If you receive a signal from them, it means that the following trend has recently appeared on the market. It appeared, which means that it is not known whether it will last in the future.
Further and further advances in education will mean that he will use less and less technical indicators. They were intended to help in making decisions. However, if you want to deal with short investments in the stock market, then trading using real-time information is probably the only rational way to play the stock market.
As a basis, choose the ability to read the demand-supply relationship, candlestick and bar charts, as well as use tools such as market profile and volume and VWAP.
Will you need faith in your methods? Yes, a certain minimum, as much as possible, but you will still need to build a comprehensive market context, because without using its help, it will be very easy for you not to pay attention to the circumstances and open a position at the wrong time.
Do you understand the principles of the market?
You need to realize that the more knowledge you have, the more likely you are to multiply your capital, even a relatively small one, to a level that allows you to live off the stock market. How to learn? Start with the methods used by retail traders – technical analysis and the use of indicators. The principles on which these fields are based are relatively easy to learn and in a short time will lead you to the level of an ordinary stock trader.
After exhausting the topic, do not stop, and move on to more complicated techniques and try to understand how the forces of demand and supply in the market work, affecting the fluctuations of instrument prices. You will need an understanding of auction theory and basic macroeconomic knowledge. The auction theory is rather rarely described on the Internet, so it is worth reaching for professional literature.
In the long run, it is impossible to conduct effective stock market investments without understanding how financial institutions manipulate the prices of instruments. You must accept them as the basic law of the market and understand their principle. Here, too, it is worth using valuable materials such as literature.
How to manage risk?
It is impossible to completely get rid of the risk,but you can manage it wisely. A multitude of techniques you can learn allow you to control the slippage of capital. We are talking about using the ATR technical indicator and placing stop orders outside the average range of movement on the last candlesticks.
In addition to the classic ways, pay attention to hedging, i.e. limiting the risk of one trade by opening a position on a related instrument. Carrying out effective investments regardless of the instrument requires developing habits of reasonable risk accounting and position management.