The four pitfalls that newbie share traders need to watch out for
As COVID-19 and extended lockdowns bring a surge in the number of Aussies flocking to online trading, many first-time are finding themselves out of their depth.
Without proper education and awareness of the risks involved, beginner traders could leave themselves open to losing the lot.
Here are four pitfalls that all beginners need to be on the lookout for.
1. Not understanding the risks involved
Trading involves risk of capital loss, especially when trading leveraged products. If a trader goes in without a good understanding of risk management they are more likely to lose.
There are risks such as black swan events that can wipe out an entire account if the trader took on too much exposure (risk) on their account.
2. Not being familiar with the psychology of trading
You can have the best strategy in the world, but without the right mindset a trader is bound to lose eventually.
A trader needs to be cool and calculated and not adjust their trading based on their emotions. Unless a trader has learned to manage their impulses and emotions, they will most likely run into problems.
3. Not having the right guidance and mentoring
It's information overload online when it comes to finding a strategy to trade with. A trader must find a strategy that works for them and their circumstances, and it can be tough for a beginner to sift through the information and formulate a plan.
Having a great mentor can really help push a trader in the right direction, and if they take it seriously they can be held accountable to their trading mentor as well, just like a sporting coach.
4. Not having an investment strategy in place
Trading without a plan can and should be likened to gambling. Eventually, the ups and downs a trader goes through will lead to poor decision making and ultimately to the loss of capital.
Having a set plan and strategy in place and journaling trades helps to stick to the plan which means not making decisions on the fly. Knowing when to enter and exit a trade before the trade is entered and not adjusting mid-trade will help you to stay on track.
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