The path to trading mastery is paved with mistakes. However, learning from the errors of others can save you a significant amount of money and stress.
1. Trading Without a Plan
Entering a trade without knowing your entry point, exit point, and stop-loss level is gambling, not trading. Always have a plan before you click "buy."
2. Over-Leveraging
Leverage allows you to trade with more money than you have. While it magnifies profits, it also magnifies losses. High leverage is the number one reason new traders blow their accounts.
3. Chasing Losses
Adding money to a losing position in the hope that it will turn around is a dangerous strategy known as "averaging down." Often, the price continues to move against you.
4. Ignoring News Events
Even technical traders need to be aware of major economic news. An interest rate decision or an earnings report can invalidate a chart pattern in seconds.
5. Switching Strategies Too Often
Consistency requires sticking to one strategy long enough to see if it works. Jumping from one system to another (System Hopping) prevents you from mastering any skill.
Disclaimer: This article highlights common pitfalls but does not cover all risks associated with trading.