The practice of trading is not without its pitfalls. Traders are susceptible to certain “evils,” which can lead to negative outcomes if left unchecked.
The human brain has a remarkable capacity for absorbing information, but this can sometimes be a hindrance to successful trading. To achieve success, traders must learn to sift through information and filter out unnecessary variables. Otherwise, the brain can become overwhelmed, rendering it useless.
Traders must recognize that not everything they encounter in the trading world is worth their attention. There are certain pitfalls that they must avoid at all costs. The following points outline some of the most pernicious trading pitfalls that traders must steer clear of to succeed.
The negative effects of News and Financial Media
Consuming financial news or media can be detrimental to your investment decisions. Negative news can create a pessimistic outlook on stocks, commodities, or currency pairs, while positive news can generate unwarranted optimism.
Even seasoned professionals can be influenced by the information they receive. The issue with mainstream media is that it is typically produced by non-traders and non-investors, with a focus on sensationalizing news rather than providing accurate information. This is why the saying “Buy the rumor, sell the news” is so common.
When it comes to swing trading, worrying about economic news events or attempting to trade based on the news is counterproductive. Spending excessive time analyzing how an event might impact a particular market increases the risk of over-trading and making costly mistakes. All variables that affect a market are reflected in the raw price action charts, making additional analysis of news a pointless distraction that wastes time, energy, and ultimately, money.
The dangers of constant screen watching in trading
Obsessively watching 1-5 minute charts throughout the day, with multiple markets tiled on the computer screen, can lead to addictive trading behavior. Even if you consider yourself a swing trader, focusing on higher time frames, regularly checking lower time frames and multiple markets for entertainment purposes can result in impulsive and unwise trading decisions.
Endlessly attempting to predict the next move of a 5-minute chart in hopes of making quick profits through scalping can lead to anxiety and even addiction. Constantly monitoring low time frame charts can also cause mental exhaustion and potentially harm one’s well-being.
Traders who engage in excessive screen watching may find themselves making poor trading choices or seeking medical assistance to manage anxiety. It is essential to avoid becoming a trade-aholic and focus on a more balanced approach to trading to maintain good mental and emotional health.
Avoiding the temptation of greed in trading
The lure of profits in trading can trigger feelings of greed, leading traders to take excessive risks in hopes of earning big returns. The mentality of thinking that one more big trade will be enough to start managing risks appropriately is a dangerous trap.
Giving in to greed can cause emotional trading, which can lead to poor decision-making, resulting in loss of funds. Out of all the trading ‘evils’ discussed in this article, greed is the most important one to avoid. It may seem profitable in the short run, but eventually, it will lead to devastating losses.
It is crucial to understand that consistent profits in trading require discipline and a calculated approach. Succumbing to greed can cause irreversible damage to a trader’s account. Therefore, it is essential to exercise restraint and maintain a rational mindset while trading.
Using multiple trading strategies is not an effective approach
As a beginner, it can be difficult to determine whether the information you come across online, in books, seminars, or webinars is genuine or not. Therefore, traders must take a leap of faith and trust a specific trading method. However, many traders make the mistake of quickly moving on and adding more methods and ideas together, resulting in confusion and inefficiency.
If you believe that you have found the right way to trade, it is crucial to start with a fresh outlook and perspective. Leave all prior knowledge, ego, and analytical behavior behind. It is time to become a blank canvas, wipe the slate clean, and allow your mind to re-learn and evolve into the trading powerhouse that you need to be. Do not let your compulsive obsession to use everything you have learned cloud your judgment.
Lack of self-trust is a major pitfall in trading
To succeed, it is crucial to trust your own knowledge and skills. Being influenced by others’ opinions can harm your trading career.
Trading is a personal journey, and you need to develop a deep understanding of the market to succeed. Relying on others’ opinions can cloud your judgement and compromise your ability to analyze the market. While everyone has an opinion, only your own ability to trust yourself and make decisions based on your trading skills matter.
If you lack the discipline to stick to your trades and let your trading edge work over a series of trades, you will struggle to succeed in the long run. Therefore, learn effective trading methods such as price action strategies, understand them well, and get in tune with the market’s rhythms. Don’t be swayed by other people’s opinions, as they won’t help you achieve consistent results. To succeed in trading, you must rely on yourself and your trading methods.
Conclusion
In conclusion, it can be difficult for traders to acknowledge that the trading strategies they have been using for a long time are not effective and may be detrimental to their financial and emotional well-being. It is human nature to become attached to our past experiences and beliefs, and our ego can prevent us from letting go. However, it is crucial to identify the trading behaviors that are hindering our success and eliminate them from our lives. By overcoming our own limitations and avoiding unnecessary trading mistakes, we can increase our chances of achieving long-term trading success.