5 Trading Strategies Every Trader Should Know

“Risk comes from not knowing what you are doing.” – Warren Buffett

One of the biggest trading mistakes to avoid, which is made by many traders, is starting your trading journey without proper trading education. You may even hope to hone your knowledge and skills in the market over time. This is an innocent mistake to make because learning through trial and error can work in some places. But in the financial markets, it is a recipe for disaster.

The financial markets are diverse, complex, and dynamic, and as the saying goes: ‘markets can stay irrational longer than you can stay solvent.’ Ignorance is harshly punished in the markets, and few traders can afford to keep making uninformed trading decisions. It is, therefore, very prudent that you have a solid grasp of important aspects such as market structure, trading strategies, risk management, and trading psychology.

Thankfully, plenty of educational material in the

Trading-Courses sections 

“When you need to make a decision, don’t let your emotions vote.”- Joyce Meyer

When real money is on the line, traders can experience a wide range of emotions from excitement to desperation. For instance, it is easy to get excited about your financial fantasies when you are in a massive winning position; it is also easy to start fearing your financial situation when you are losing.

Emotions are natural, but they are capable of distorting rationality when making decisions. They can trigger cognitive biases and impulsive actions in the market, which will ultimately have a negative impact on your trading activity. Financial markets can be very fast-moving and trigger a lot of emotions, and this is often when traders make the worst trading mistakes.

The key for a trader is to not let emotions get in the way of logic and objectivity when trading the markets. Having and adhering to a rule-based system of identifying opportunities and assessing your risk/reward proposition can guard against being influenced by negative emotions in the markets.

“Too much of anything is the beginning of a mess.” - Dorothy Draper

Overtrading is simply opening too many positions in the market. Traders who overtrade want to capture as much profit from the markets as possible. This is a common trading error among new and experienced traders that can impact your trading performance negatively.

To start with, overtrading is a costly activity because of the trading costs associated with each position. Overtrading also divides your attention, making it very difficult to effectively manage your trade positions. Overtrading also means that you are likely performing low-quality research and analysis before taking a position in the markets.

Trading is a game of patience, and you can achieve better results by trading quality trade setups over the long run. Not every opportunity is worth trading, only the best ones. You can avoid overtrading by having a trading plan and taking some time off from the markets.

“While seeking revenge, dig two graves - one for yourself.” – Douglas Horton

Revenge trading happens when a trader opens positions in the market attempting to make profits after suffering a significant loss. This is similar to a gambler who chases their losses in the hopes of quick financial recovery.

Some of the ways people revenge trade include letting losing trades run, closing a position and taking the opposite trade, and making too many low-quality trades. Revenge trading has many dangers. It can make you disregard proper analysis, weaken your discipline, and also trigger a series of negative emotions that will further have a bad impact on your performance.

To guard against revenge trading and making further trading mistakes, it is important to know the warning signs. Use stop losses and assess yourself as well as your trading plan after suffering a big loss. It is also important to understand that there is no perfect strategy and losses are part of the game. You can also step back from the market for a short while until you are certain that you are ready to trade objectively.

“Less is more.” - Ludwig Mies van der Rohe

Leverage is a powerful tool in online trading. It allows traders to control trade positions in the market that are much larger than their capital. Still, using excessive leverage is one of the biggest trading mistakes made by many new and experienced traders.

The obvious danger of overleveraging is incurring huge losses even on small price changes in the market. Overleveraging also locks capital in individual trades. Because of the potential of making huge profits or suffering big losses, overleveraging can also trigger negative emotions that will result in other bad decisions in the market.

The leverage tool should be used cautiously. Using low leverage is actually a survival tactic that will keep you in the market longer. Overleveraging can be avoided by having a solid risk management plan.

“Journaling leads people to life changes, leaps of faith, new insights, and meaningful decisions.” - Lynda Monk

Another major trading mistake committed by traders is not keeping a trading journal. A trading journal is a log of your entire trading activity. You should record everything from before opening a trade to after closing it. Some of the things to record include your analyses, market observations, your emotions, trade time and date, as well as performance. Reviewing your trading journal can help you identify your strengths and weaknesses and improve your trading psychology and performance.

A journal is only as good as what is recorded in it. So, make sure to log as much detail as possible. Trade journaling can seem tedious and time-consuming, but it will certainly improve your trading activity.

“Small wins are still won, and the journey is more important than overnight success.” - Katie Couric

This is a common trading mistake made even by experienced traders. It stems from being subjective about your trading activity and succumbing to emotions such as greed, confidence, and anxiety.

There is nothing sadder than watching profits dissolve in the markets, and you should plan better to protect your winnings. The use of profit targets and trailing stops can help you prevent profitable trades from turning into losses.

You can also book partial profits from an existing trade position to reduce your overall exposure in the markets. It sometimes makes sense to enjoy the small profits that the market gives you rather than becoming fixated on the big wins that happen infrequently.

“If you can’t take a small loss, sooner or later you will take the mother of all losses.” - Ed Seykota

Many traders know the importance of stop-loss orders, but they still go ahead and avoid using them. One of the common reasons traders do not use stop-loss orders is that they can be activated, but then the market reverts to the predicted direction.

However, not using a stop-loss order can be very dangerous and could lead to loss of capital. Nonetheless, it is also very important to use stop-loss orders effectively. Avoid stops that are too tight or too wide and ensure that the orders are based on sound technical/fundamental analysis rather than mere emotion.