Trading Mistakes: taking your winners too early and letting the losers run too far
IG client Kassar Khan discusses the psychology of maximising your opportunity as a trader.
Khan says the tendency is to take profits too early, rather than let them run.
Conversely, inexperienced traders either allow losses to run too far in the belief that at some point the trade will flip back in their favour, or worse still, add to the losing position in the belief that they will make it all back and more.
(Video summary)
Trading mistakes to avoid
In this video series, IG client Kassar Khan shares his trading mistakes, providing valuable insights for beginners in the trading world.
One of his major blunders was holding onto losing trades for too long while cashing out early on winning trades. This created an imbalance and resulted in a low success rate overall.
Kassar admits that overcoming this issue is a daunting task that often requires experiencing significant losses before regaining composure. As someone who taught himself the ropes of trading, Kassar had to face these challenges by himself. While he could have sought advice from other traders, he firmly believes that each person has their own unique strategy and approach. Therefore, he emphasises the importance of dedicating time to independently develop techniques to conquer these obstacles.
Adjusting stop-loss orders
Kassar highlights a common mistake of adjusting stop-loss orders when trades are close to hitting their stop levels. Initially, traders may feel relieved that they have managed to alter their risk, only to discover that this tactic is ineffective. Out of ten trades, perhaps only one will turn in their favour, giving them a false sense of accomplishment.
However, this method often leads to unpredictable outcomes. For instance, trades that were initially meant to risk £1,000 and take a £3,000 profit can end up becoming £4,000, creating an imbalanced risk-reward ratio. When such trades eventually bounce back in their favour, traders may find satisfaction in pocketing a £1,000 profit. Unfortunately, this positive outcome is short-lived because the next loss could be much higher, resulting in an overall deficit. Kassar warns against falling into this pattern, as it can lead to catastrophic losses or a significant depletion of one's trading account.
The pursuit of recovering these losses through a single high-stakes trade is essentially gambling and unlikely to be successful. Contrary to popular belief, trading more frequently is not the solution. According to Kassar, trading smart and focusing on quality over quantity is the key. He advises against being swayed by the fear of missing out and stresses that losses are a normal part of trading. By accepting the risk of a predetermined amount, embracing losses, and eventually hitting a major winning trade, traders can effectively cover those losses.
However, allowing losing trades to linger indefinitely creates an unrealistic desire for a massive victory, which can ultimately lead to complete wipeout or substantial losses of one's trading account.
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