The Pitfalls Facing The New Trader In The Financial Markets
It’s been proven that trading the financial markets can be a profitable occupation. There’s evidence of the possibilities of generating substantial profits while enjoying a leisurely lifestyle. Once refined, financial market speculation can offer enormous rewards.
But this scenario apparently is often reserved for the fortunate few or on an late night infomercial, as trading for a living shows leaks and tremendous financial distress, forcing loss in one’s finances and livelihood, this if not proceeded the proper way.
There are a variety of tips, suggestions, recommendations from all the various websites, seasoned traders and financial advice gurus, and how they were able to accomplish a successful path to a profitable trading career.
What’s profiled are the best of these tips, this especially if you’re starting out or yet to have the disciplinary backbone where your current trading is draining out your capital.
Always Have A Proven Trading System
You’ll never become a successful trader if you don’t have a proven trading system which is tailored to your discipline and temperament. These systems are available in different shapes, sizes, and methodologies, and not one single method is ever bullet proof. What they all do have, however, are a few common elements.
Every successful system has both a precise signal for “entry” and “exit” which is determinant on technical influences. A trading system should also be described, understood and executed easily.
If you can’t verbalize your system quickly, then it’s not considered a system. If you don’t have any set rules for both the entry and exit, then it is not a system.
Taking The Time For Proper Learning
There’s a lot of money which can be saved, but it’s usually the impatience of the new trader who won’t bother to take the time and the diligence to learn and practice. They need to consider it a real business and not a hobby.
There are a lot of resources which are readily available on the psychology of the trader, so there’s absolutely no excuse for not having the proper mindset to trade the markets prepared.
Demo accounts for practicing are usually available for free for all the major financial market trading platforms across all disciplines. What this means is that you can practice your entry and exit order execution by using these “dummy” paper trading accounts.
This way, you can refine and fine tune your trading system, temperament, discipline, this to confirm its viability before placing a single dollar of real capital at risk. Not doing so can spell doom.
Trading In The Proper Time Frame
One of the luxuries of trading for a living is that it offers you the freedom of time beyond the trading, this provided that you approach it properly. This spare time can be used for leisure activities or while still maintaining your job.
So what all of this points to is determining the exact time frame to use when trading. For instance, some will decide to day trade because they don’t have the time to continuously monitor the markets during the day or week.
Others prefer to swing trade instead, which are trade positions that are kept anywhere from 1 to 3 days. There are broader perspective trades, which requires longer term market speculation, taking longer duration positions.
What’s important is that you need to decide which trading time frame best suits your lifestyle, discipline and patience.
Trading In The Right Market
One of the biggest mistakes which novice traders make is that they decide to trade a particular market because of a previous emotional experience, which may have introduced them to the potential thrills of the financial markets.
That experience drew them in a specific market such as stocks or the Forex market where an attachment is established. This type of attraction isn’t always the best or the proper way of picking the market that you should be trading.
The various markets all have their unique nuances and trading structure. Some markets are a lot more volatile than others, while others may be suitable for trading intraday, or late at night such as the Forex market. Others are suitable for long-term investing.
The process of deciding which market to trade should also include a look at which market is suitable for the size of your trading account, risk tolerance, and trading time frame.
Understand The Risks Of Trading The Markets
Every market poses their own unique risk tolerance factors, as does each and every trade offers its own distinct risk which you need to become accustomed with.
You may have the generalized awareness that the trade you’re currently trading may not be going the way that you want, this the reason why you need to place precautions such as “stop-loss” triggers to minimize losses.
It’s not how many trades you win, but learning how to minimize the losses. It’s all about how the market can suddenly go against you, and how you should guard yourself when that happens.
In every major financial market, there are fundamental events such as economic indicator releases, unexpected corporate earnings reports, or statements from government or international officials, which can influence and wildly fluctuate the market prices.
Some of these can’t be avoided, such as a natural disaster which suddenly raises orange juice prices, but there are some which you can guard against, as they’re usually noted on the financial instruments calendar.
As a new trader, what you’ll do is make a lot of mistakes until the trading gets better, so be prepared to possibly lose a bit of trading capital which is part of the learning process. What’s more important is how you learn and rebound from the losses.
Once you dedicate yourself by learning and refining to eliminate all of your mistakes, this sooner than later, the better off that you’ll be. The process involves avoiding the biggest potential pitfalls which faces the new trader in the financial markets.