Traders will encounter losing traders. Sometimes it’s because of other market factors and unpredictability. However, there are times when, unfortunately, the traders are the main reason why they are losing, and they are not even aware of it. Today, let us talk about these things to familiarize ourselves and avoid doing them.
Taking too many risks, you can’t handle
Confidence is not a bad thing, but an excessive amount is. When you have an exaggerated belief in your skills, you will most likely take more risks than you can handle. Most of the previous wins may have been successful. So, you think that you know everything about the market and nothing will go wrong again, this time. So, you risk a lot with all of the confidence. Hence, even when a person makes sense that you might lose the trade, you will not believe them since you think too highly of yourself and your capabilities. Overestimation of one’s self is dangerous.
Revenge trading and too much trading
Traders should know how to manage their risks and protect their capital. So, if you trade too frequently, thinking you are ready even when you are not is suicide. There is also a term called revenge trading. For instance, you lost single or multiple trades. You get too emotional that you want to trade again without pausing to get back what you lost. As a result, you are most likely to fail again. Be patient and stick with your trading plan.
You may have heard that leverage is a double-edged sword. It allows you to open a massive position with just a little capital in your account and borrow the rest. For instance, you can control a $100 position even when you only have $1, and you borrow the rest. This is a classic example of a 100:1 leverage ratio. With a 100:1 leverage, you can gain a 100% profit. However, you can also have 100% losses that can wipe out your whole account. A wise trader who wants to use leverages will only risk at least 10% of his capital (10:1 leverage ratio). The lesser the leverage, the better.
Trading multiple positions means that every position has a different currency pair. Know all of their risk exposure. Let us assume that NZD/USD and AUD/ USD usually moves the same way. So, if you are a wise trader, you would pick one out of the two. Know the currency correlations or the way two currency pairs move in the same, different, or random direction in a given time frame. Know all the risk exposures that you get yourself into to protect your account balance.
Setting stop losses are meant to close your trading positions when a specific loss was hit. So, you set these for a reason, and it most likely agrees with your trading plans and system. So, it might not be wise to override, let alone remove your stop. As soon as the market hits your stop, it does not make sense to continue the trade so, it will be better to close.
Give yourself a favor.
After reading this, assess yourself if you do some of the things we have mentioned. It’s good if you do not possess any of these qualities. Now that you are already aware of them, you can avoid them in the future. If you are guilty of some of them, it might be time to make a change.