The trading markets has become one of the most lucrative markets in the world because of its low barriers to entry and its easy accessibility. If you have a computer, an internet connection and a couple of hundred dollars, you can start trading right away. If the trades go your way, you could end up making a lot of profits, but if they don’t, you may just lose your capital. Obviously, you would prefer the former scenario rather than the latter, but it doesn’t always work out that way. There are lots of traders who end up making mistakes and it can result in massive losses.
You wouldn’t want that to happen to you and the best way you can get it done is by knowing what mistakes need to be avoided when you are trading. What are some of these mistakes? Check them out below:
- Don’t keep trading if you are losing
There are two statistics that you need to monitor; your win-rate and your risk-reward ratio. Win-rate refers to the number of trades you win out of the total trades you make. Your win-rate should ideally be more than 50%. The reward-risk ratio is how much you win as compared to how much you lose. This should be above 1 and ideally 1.25. If you are unable to maintain these, it is best to take a break from trading.
- Trading without a stop loss
You need to have a stop loss in place for every trade that you make in the market. As stop-loss is an order that gets you out of a trade if the price moves beyond the amount you have already specified. Placing a stop-loss order means that you eliminate a big portion of risk from your investment. If you start losing a trade, the stop loss will prevent you from losing more than you want. Brokers usually offer traders stop-loss features, but you should still confirm before signing up with a broker. You can simply go over DMX Markets review to confirm if they offer you this option.
- Risking more than you can lose
One of the most important elements of your risk management strategy is to establish how much of your capital you are ready to risk with every trade. Ideally, traders should not risk more than 2% of their capital on a trade, which means a stop-loss will close out a trade if it leads to more than 2% loss of your trading capital. In this way, you can ensure that even if you lose several trades in a row, you will not deplete your entire capital. Moreover, if you make any winning trades, you will be able to recoup your losses.
- Choosing the wrong broker
The biggest trade that you make is depositing money with a broker. If the broker is poorly managed, not stable or an outright scam, you could end up losing your money. You should take your time in choosing a broker. When you are trying to choose a broker, you should consider your trading needs and then check what they offer. Always use reliable resources to get information about the broker. For instance, if you are looking at DMX Markets, then it is a good idea to take a look at DMX Markets review to know what the broker can offer.
- Trading without a plan
A trading plan basically outlines the strategy you wish to use when making your trades. It defines what you will trade, how you will trade and when you will trade. You could also add what markets you want to trade in and at what time. It is also necessary to include your risk management rules and you also need to add how you will enter and exit trades, for both losing and winning trades. Not having a trading plan means that you are making unnecessary gambles. After you have come up with a trading plan, you can try it out through a demo account that’s offered by some traders. This allows you to test the plan with virtual money and you can use it with real money only if it is profitable.
As long as you avoid these important trading mistakes, you can achieve your trading goals.