Top 10 Trading Mistakes!
are definitely some common mistakes that tend to trip up many new
traders, and sometimes even those that have been around a little while
and ‘should’ know better. Some of these relate to the all important
aspect of timing in trading:
than waiting for the precise moment to enter a trade, based on
analysis, a trader may be driven by impatience or a fear of missing out,
into entering the trade too early. Doing so means paying a higher
premium than they would have if they had waited, and cutting into the
profit that could have been made.
- Another timing mistake is to
exit a trade too early, and this is usually a fear-driven decision, too. Rather than allowing the trade to realize its full potential, the
trader pulls out sooner, afraid of risking the gain that has already
- On the other end of the spectrum is the error of
staying in a trade too long – usually as a result of greed. The trader
is tempted to wait for the profit rise just a little more, rather than
exiting with a moderate gain in accordance with the plan that has been
made for entry and exit points. This often results in a loss of the
profit that could have been taken, and even the investment capital.
Some basic and common mistakes are made in the choice of which options to purchase, and a trader should avoid:
out-of-the-money options. The reason that many traders are tempted to
invest in these options is that they are cheap. However, they are cheap
for a good reason. There is very little chance that the asset price will
move sufficiently before expiration of the option contract to allow the
option to become in-the-money.
- Buying options too close to
expiration. This mistake is usually made for the same reasons as the
mistake above. Options that are very close to their expiration date,
otherwise known as short-term options, are usually priced lower than
their long-term counterparts, however, gambling on the chance that this
type of option can make money in a sufficiently short time is setting
the trader up for far more losses than gains.
- Neglecting to use a stop loss,
which is the instruction placed with a broker to sell an investment if
it drops to a certain price, which is specified by the trader. This is
used to limit the risk on the investment, and is set at a percentage
below the initial purchase price.
Other potential pitfalls can come under the broad category of trading psychology,
and all traders would do well to understand this sometimes neglected,
but very important aspect of success in trading. Be aware of:
potential danger of adrenaline. This may encourage a trader to ignore
good sense and planning, and to pursue the thrill of the chase or the
win. It is interesting to note that a near-win can produce even greater
feelings of adrenaline than an actual win, and can also create a
powerful urge to keep trying.
Stubbornness may show itself in an
unwillingness to accept ‘defeat,’ and a determination to be right at
all costs; however, the trouble is that these costs are usually very
high and still do not produce the win against the odds that is desired.
often manifests following a period of success, when a trader can be
lulled into thinking that they have the ‘Midas Touch,’ and that nothing
they do can go wrong.
The opposite extreme - over-caution - is
also detrimental to trading success, as there must be sensible,
calculated, and moderate risk taken in order to profit in the markets.
Best of Trading,
Director of Stock Options Made Easy
”Success is simple. Do what's right, the right way, at the right time.”
Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.
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