Some mistakes are the most common mistakes while trading, which need to be avoided; otherwise, they will likely fail in trading. Data collected from more than 100,000 live accounts and tens of millions of trades were anonymized and analyzed to identify common trading behaviors among successful traders. The first notable finding was that a majority of traders (more than 50 percent) closed trades at a profit. In comparison to their winning businesses, many traders lose a considerable amount of money on their losses. Here are the most common mistakes while trading and some ways and tips for avoiding them. Avoiding business mistakes will give you a better chance for success and lead you understanding customers and their buying habits.
Better to let aside emotions while making decisions
The best way to make decisions when trading is to overcome our natural tendency toward emotion and minimize the impact of emotions on our decision-making. Smart trading involves rational decision-making, not emotional decision-making. After a good day or a bad day, traders may become distracted by emotions and deviate from their plan.
A study by Kahneman and Tversky revealed that people making decisions based on potential gains or losses most of the time behave irrationally. Trading positions without any analysis might start after experiencing a loss or not making the profit expected. As a result, traders might unnecessarily increase their losses in the hope of eventually increasing them, but it is unlikely that this will result in the markets moving in a more favorable direction. In order to eliminate emotions from your trading, you need to always perform your own fundamental and technical analysis before you enter or exit a trade.
Lack of market and customer research
If you fail to do sufficient research, you will likely misunderstand your market and end up selling to the wrong people. In the case of researching and using information like your own network contact or free government data, you are more likely to succeed. Exchanging ideas with other people working in the same industry and identifying buying trends and customer profiles by conducting field research are some different ways of doing this research.
Trading and starting a business without any plans
Using a trading plan can help you overcome your natural biases, which is why it’s so important to have one. This can serve as a guide for your time on the market. This plan must include the amount of money you are willing to invest, a strategy, and your time commitment. So it is vital to know how you have to plan a successful trading plan. The next big step is to stick to the plan, which is setting up your plan with limit orders and stop-loss.
Remember that abandoning your good plan is a mistake. Do not get tempted after having an unsuccessful day. This would be a wrong decision to make because, in order to achieve any successful outcome, every new position should be founded upon a trading plan. Having a bad trading day means that things are not going as you expected. So instead of abandoning your plan, which you have put much effort into making, change it and optimize it. Remember to include what you have learned from your experiences in losing and winnings in the next version of your plan. Having a trading diary would help a lot.
Not sharing business ideas
The most common mistake while trading is to keep all the business ideas for yourself and not share them, which makes you miss out all the objective feedback. Collaborate with colleagues to gain valuable insight. Brainstorming can help you generate good ideas for your business. Use them when developing your idea. Also, by asking potential customers what they think of your product or allowing them to view a prototype, you can discover whether there are any problems the product could solve or does it offer something unique that customers might want to purchase. Keep your ideas confidential by entering into a nondisclosure or confidentiality agreement.
Improper searches about the markets
It is not uncommon for traders to make decisions based on gut feeling or a tip they have just heard of. Although this approach may produce good results in certain cases, evidence and market analysis are necessary before making any commitments to open or close positions. There are also many traders who follow popular markets such as Wall Street or GBP/USD. However, research has shown that the average loss across 15 of the top traded markets is much greater than the average gain. So be sure to research the market you enter before opening a position.