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Basic mistakes

Beginners usually make some common errors during the trading, which are result from inexperience and entry into the market without more analysis.

Trading without plan is one of the recipes for unsuccessful trading. Traders must have a plan before entering the market, otherwise investment can be compared with gambling. So it will have result like in gambling, with most probable failure.

Looking forward to get rich in just few days or months. Beginners are often disappointed when price of security they bought declines next day. However, if the financial instrument is bought as a result of the analysis, things will soon come at the right place and we don't have to worry about short fluctuations. Who wants to be successful trader must be armed with patience, panic will not be of any help.

Trading against the trend. You can often hear that experienced traders say: "buy when prices fall, and sell when rising". However it should be noted that this refers to price corrections and identification of moment of trend reversal ("capture" tops and bottoms). Beginners often wrongly interpret it and buy when downward trend is active and thus almost certainly make a loss. Beginners should trade in the direction of the trend, trading against the trend brings a lot of risk even for experienced traders.

Keeping losing positions. This behavior is linked to a phenomenon in human behavior: sunken investments. People do not want to accept the mistake and they are trying to justify the false optimism. Such a phenomenon could be found in everyday life. For example, the company invested in a project that after a while does not give any results. Instead of project closing, company invests more to improve it, add new functionality, etc. However, the point is that the project was a failure. It should be realized and project should be rejected, company should not invest more, consume resources and thus increase the loss. So it is same with trading. If the investment in a financial instrument was bad, it should be cut and loss accepted. Trader should look for some other security to invest to in order to compensate the loss. It is wrong to keep on waiting and waiting. People often have false optimism: "price must rise", which is characteristic of gambling behavior.


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