Date: May 27, 2015
The 5 most common mistakes you don’t want to make when starting out
There are a series of common mistakes that many investors continue to repeat. These mistakes can be
quite detrimental to your trading capital and can affect your confidence in investing. Here is a selection of
the biggest trading mistakes plus some tips to help you avoid them.
1. Insufficient risk management
Whilst picking the right product is important, it is capital preservation Stop losses are a vital part of an effective risk management strategy. Stop loss and take profit order placement
Another example for stop loss and take profit
There is always the option to lower the position size (number of The trade off: Bigger stop loss, less profit on the upside, if the With regards to the take profit order, a previous high (or resistance) Position sizing There are a number of different position-sizing models available, and A popular method for short term investors is to risk only 2% of their It’s sensible to consider overnight interest costs too, if applicable, as It is a common mistake to place too much capital on any one trade. Position Size (number of units) is equal to Maximum For example, when considering a short-term investment, using a
Types of stop loss tactics There are two types of stop losses, the standard fixed stop and the The fixed stop loss is set at a specific price which is chosen by the A trailing stop is set a specific number of points away from the Investors typically use a standard stop at the start of their positions 2. Lack of a cohesive strategy The second big mistake to avoid involves investing without having a When is a good time to buy? A strategy around either fundamental How much should be bought? By using stop losses and calculating Is it time to sell? By using a mixture of technical analysis and any Should more be bought? A good strategy is to consider adding What timeframe should be looked at? This will come down to how Should you trade long or short? Don’t be afraid to short sell 3. Unsuitable methodology A clear methodology is required when selecting positions in order to To develop a suitable method it helps to start a trading diary. It’s A good gauge of consistency is that there won’t be a need to Trading diaries and good record keeping are the best ways to fine Questions A reliable investment approach should satisfy the previous Short term or long term? A lot of people think that the most Do I have access all the time? When trading in the very short term Do I have time for analysis? Detailed fundamental analysis can Am I properly educated in my method? For those looking to 4. Over financing Our platform allows extraordinary flexibility because of the use of For example, investing in the likes of indices or foreign exchange can For those new to our platform it can be worth considering placing a This would mean with $10,000 in an account there wouldn’t be a Stop losses are very important but if there is a sudden fall in the
5. Poor monitoring & record Many investors can become fixated with finding their next position ensure confidence in these trades and their on-going suitability. It’s
The CMC Markets Trading Smart Series This article is contributed by CMC Markets Disclaimer: The Information is not to be regarded as an offer, a solicitation or an invitation to deal in any investment product or an advice or a recommendation with respect to any investment Contracts for Difference and leveraged foreign exchange trading involve the risk of sustaining substantial losses and are not suitable for all investors. You should independently consider CMC Markets does not warrant the accuracy, completeness, suitability, currency or reliability of the Information. CMC Markets accepts no liability for loss whatsoever arising from or CMC Markets does not and shall not be deemed, and accepts no obligation, to provide advice or recommendation of any sort in relation to any investment product. CMC Markets CMC Markets Singapore Pte. Ltd. |
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