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Top 7 mistakes in trading.

/ The article is intended for novice traders. More training materials can be found here: https://www.varchev.com/trading-uni.htm. /

1 – Lack of knowledge of market functioning, technical and fundamental analysis, mass psychology and market cycles.

Everything goes against the logic of the majority, that’s how markets work. Unfortunately or fortunately, the majority of people make common mistakes and are unable, due to lack of understanding, to distinguish the fine line when an uptrend is replaced by a downtrend and a distribution phase is replaced by a prolonged downtrend.

At the moment of reversal of the trend, a psychological trap and a series of catastrophic events are established for the majority of participants, and a number of accompanying circumstances and lack of experience make it impossible to see the situation objectively.

2 – Greed and fear – a psychological trap.

Fear and greed are particularly damaging emotions for traders. The market needs a sensible strategy. Greed stems from inexperience and fear of lost profits. Refrain from making decisions based on emotions and rashness. It is important to recognize that opportunities come and go regularly in the market. Before starting a trade, you need to consider and justify your motives for doing so. Any emotion in trading is detrimental. The decision to enter or exit a trade should be pre-calculated, devoid of emotion and haste.

3 – Wrongly placed stop orders.

Stop-loss orders are often used irrationally or ignored by novice traders. Traders can be roughly divided into two groups: those who always use stops and those who prefer to work without them. However, these are extremes. A stop placed too close can lead to a trading error with proper analysis, while not having a stop under certain conditions can lead to huge losses.

4 – Unfixed losses.

If a trader becomes an investor due to circumstances and not by his own will, he is a bad trader. Trading in financial markets necessitates the existence of losing trades; it’s just the nature of the business. No one has 100 percent winning trades. Winning trades should cover bad trades and losses should be limited.

If you are unwilling to take losses when the price moves against you, you lose control of the situation and become a victim of circumstances.

5 – Deviation from the strategy or vice versa – total lack of flexibility of actions.

Confusion, agitation, and swinging between extremes are certain indicators of a lack of a trading strategy or an indication that it has been constructed incorrectly. Planned actions eliminate the possibility of unforeseen situations and make risks manageable. The plan should account for both potential gains and losses. Frequent strategy adjustments during the trading process are usually detrimental.

The reverse is also true: the trading strategy must be adaptable to the current market environment. In certain situations, there may be confirmation that the trend has reversed or a signal of a potential reversal. Blindly sticking to the strategy without adjustments can destroy accumulated profits.

6 – Lack of system, algorithm and subjective opinion.

You need to know in advance where you buy and sell, what part of your deposit you are working on, the allowable losses and the rationale for these activities at the same levels. It’s all a trading strategy. There should be no spontaneity, overconfidence or hesitation in actions.

You should not accept another’s subjective opinion as truth. The more confident the words and statements sound, the more trust they inspire on a psychological level, directly into the subconscious, and you begin to feel that these are your own thoughts.

The market is full of many types of manipulation; therefore, any information should be double-checked.

7 – Methodical approach to risk management.

Even a good trading strategy can turn out to be a loser in the medium term if too many instruments are traded on one account. Risk management includes, in addition to the management of the specific transaction, a comparison with the other transactions that are carried out in parallel. Correlation or lack thereof. Too many trading tools can prevent the correct assessment of the potential of the chosen trading system.


 Head of Trading Dimitar Kalapov

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