Trading and investing is a probabilities game kinda like poker, it is the art of finding and timing the next opportunity and putting the odds in your favor. It is no surprise that a lot of gambling and trading rules are the same and for good reason.
Predicting a market is hard, the lower your trading time-frame is the higher the risk of quick draw-downs. Mistakes can come in any form, it can simply be not paying attention, pressing the wrong button or just simply making the wrong judgement.
The first mistake is not limiting your size per position, leaving a large part or all of your capital exposed to a single price prediction that could end up against you for some of the reasons stated earlier. A simple question to ask yourself is, do you expect yourself to be accurate 100% of the time and I doubt there is any trader that will answer yes, so diversifying across at least a few uncorrelated positions high and low risk should be a fundamental part of your strategy. This can include a 30-40% cash or cash-equivalent position.
The second mistake is not having an exit strategy in the form of a stop-loss, taking losses is essential to be successful as a trader, there are gonna be times where things don't go as planned and a decision has to be made to cut a bad position, the earlier you can recognize a loser and cut it the better your performance will be. People are risk averse, we don't like admitting that we lost but we fail to acknowledge that we can be biased and make the wrong decision because of natural tendencies to stick to beliefs. Placing a calculated stop-loss removes the mental strain of having to make the decision in real-time, this means you can walk away from the trade and let the odds play in your favor.
The third mistake is trading impulsively or emotionally causing you to break rules or make bad calls, you should never deny your flaws as a human and always properly evaluate your potential losses against your potential gains. If your system has some kinks in it the worst thing that can happen is being too excited and bet too much on the wrong information. Just as not taking a trade out of fear is also a waste of opportunity and shows lack of discipline. There should be a balance and it's beneficial to second guess yourself.
Predicting a market is hard, the lower your trading time-frame is the higher the risk of quick draw-downs. Mistakes can come in any form, it can simply be not paying attention, pressing the wrong button or just simply making the wrong judgement.
The first mistake is not limiting your size per position, leaving a large part or all of your capital exposed to a single price prediction that could end up against you for some of the reasons stated earlier. A simple question to ask yourself is, do you expect yourself to be accurate 100% of the time and I doubt there is any trader that will answer yes, so diversifying across at least a few uncorrelated positions high and low risk should be a fundamental part of your strategy. This can include a 30-40% cash or cash-equivalent position.
The second mistake is not having an exit strategy in the form of a stop-loss, taking losses is essential to be successful as a trader, there are gonna be times where things don't go as planned and a decision has to be made to cut a bad position, the earlier you can recognize a loser and cut it the better your performance will be. People are risk averse, we don't like admitting that we lost but we fail to acknowledge that we can be biased and make the wrong decision because of natural tendencies to stick to beliefs. Placing a calculated stop-loss removes the mental strain of having to make the decision in real-time, this means you can walk away from the trade and let the odds play in your favor.
The third mistake is trading impulsively or emotionally causing you to break rules or make bad calls, you should never deny your flaws as a human and always properly evaluate your potential losses against your potential gains. If your system has some kinks in it the worst thing that can happen is being too excited and bet too much on the wrong information. Just as not taking a trade out of fear is also a waste of opportunity and shows lack of discipline. There should be a balance and it's beneficial to second guess yourself.
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