Hey Steemit!
Here is your Black Swan, so
Everyone of us makes errors in our everyday’s life choices. Fortunately, for most of us the number of errors is less than the right things we do.
In trading it isn't so. Many times we can make a number of mistakes definitely bigger than right things we do, especially if we are beginners.
However we can learn from our errors: many mistakes are useful because they give us the possibility to grow up and to understand many things that otherwise we wouldn’t have learned.
A mistake that could help us to understand our limits and eventually to overcome them in the future it’s to open a trade with a way too big amount of money that we shouldn’t have invested at that time. When managing a trade that in our mind is too important both in terms of amount and of “psychological capital” this will bring us to adopt a wrong psychological attitude. The wrong psychological attitude often manifests itself through negative emotions: fear could take over our mind and bring us to make mistakes, also heavy ones.
Among the most important things traders should take care of, we find “psychological capital” that is far more important than financial capital, especially to people that have a continuous approach to the market. Traders should have a calm mind-set and develop self-confidence; most importantly they shall stay calm and confident when they have open positions.
In light of the above assumptions is now time to analyse a few mistakes that can make traders to lose their self-confidence.
1. Respect your stop loss
One of the most common errors is to set a stop loss level on the trading platform and cancel it few seconds before it be triggered. Even worse would be to set a stop loss level in our mind without closing the position when the price matches our previously decided stop loss.
This is a very common mistake, but if someone wants to have a long career as a trader it is necessary that he understands the importance of stop losses. Stop losses are pivotal to trading because they help us not only to preserve our financial capital, but also to avoid devastating losses for our morale. As often happen to whom doesn’t want to follow the stop loss rule, it is sufficient one wrong trade only to lose a material part of its financial resources as well as a fair share of his self confidence. Remember that to recover a loss of 10% of your money you need a gain of 11% only, but if you have to recover a loss of 50% you need a gain of 100%!!
2. Don't change the time frame
Another common mistake is to open a trade looking at a chart with a certain time frame and then, when this trade is starting to create a loss, revealing it as a wrong choice, switching the time frame of the chart. So we start to believe it's only a question of time, that we have only to wait and see and our trade would be great. Indeed nine times out of ten prices will continue to move against our position bringing our portfolio to an important loss.
3. Don't modify your time of exposure to the market
A third mistake, that may be considered as the “son” of mistake no. 2, is the tendency to modify the time of exposure to the market. Let me explain it better.
Sometimes traders open position they would like to close during that very trading session but, when the trade starts to go wrong, they maintain the position to the day after, hoping prices will change direction, and that the loss will be turned into a gain. Often this type of hope remains just an hope, being the last resort of a trader. When you start hoping you are in a deeply troubled mood and it doesn't foresee nothing good.
4. Trend is your friend
Another common mistake is to have in mind a trade, even if none of the indicators which we usually use supports our idea. For instance several months ago General Electric fell down for many consecutive days. Surely someone, despite the strong bearish trend, did find an indicator, oscillator or forced technical figure to bring us the light…”I saw it…the rebound!” The reasoning is: “GE is an historical company, the index it is not going down…it is certainly an excess. Now sellers have finished to push down prices, look at the MACD, it is creating a divergence, this is a good moment to enter…” Many times this kind of reasoning, looking for a foothold to validate our idea, is only the anteroom of a wrong trade.
5. Don't brood on missed opportunity
The last mistake we consider in this article is an attitudinal mistake, a psychological error. It’s about brooding for a long time on a missed opportunity or about a trade we didn’t manage in a good way.
So many times it happens to repeat to ourselves, obsessively: “If only I would have bought that stock…why didn’t I buy it? I wanted to do it, I’m a stupid…did you see its rise?” This negative attitude brings our mind to a sort of “ search for a revenge” and this can only lead you to another wrong trade.
All these indications are useful and can be applied to any type of trade you make and on any type of instrument, including crypto.