If you know the pitfalls of trading, you can easily avoid them. Small mistakes are inevitable, such as entering the wrong stock symbol or incorrectly setting a buy level. But these are forgivable, and, with luck, even profitable. What you have to avoid, however, are the mistakes due to bad judgment rather than simple errors. These are the “deadly” mistakes which ruin entire trading careers instead of just one or two trades. To avoid these pitfalls, you have to watch yourself closely and stay diligent.
Think of trading mistakes like driving a car on icy roads: if you know that driving on ice is dangerous, you can avoid traveling in a sleet storm. But if you don’t know about the dangers of ice, you might drive as if there were no threat, only realizing your mistake once you’re already off the road.
One of the first mistakes new traders make is sinking a lot of wasted time and effort into predicting legitimate trends. Traders can use very complicated formulas, indictors, and systems to identify possible trends. They’ll end up plotting so many indicators on a single screen that they can’t even see the prices anymore. The problem is that they lose sight of simple decisions about when to buy and when to sell.
The mistake here is trying to understand too much at once. Some people think that the more complicated their system is, the better it will be at “predicting” trends. This is almost always an illusion. Depending too much on complicated systems makes you completely lose sight of the basic principle of trading: buy when the market is going up and sell when it’s going down. Since you want to buy and sell early in a trend, the most important thing to discover is when a trend begins. Complicated indicators only obscure this information.
Don’t forget to keep it simplistic : one of the simplest paths to identify a trend is to use trendlines. Trendlines are simple tactics to tell you when you’re seeing an uptrend ( when costs make a collection of higher highs and higher lows ) and downtrends ( when costs show lower highs and lower lows ). Trendlines show you the lower boundaries of an uptrend or the upper boundaries of a downtrend and, most vitally, will help you see when a trend is beginning to modify.
After you get cosy plotting trendlines, you may use them to choose when to start to take action. Only after using these early signals should you start to use more certain systems to establish your actual sell or buy point. Moving averages, turtle trading, and the Relative Strength Index ( RSI ) are a few illustrations of more complicated indicators and systems that are accessible. But only use them after you have determined if the market is trending or not.
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