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Finally, Common mistakes which traders always do

Haytham

Member
7. Lack of Specialization
Many people are attracted to trading because they think it’s an easy vehicle for making money. However, there are several types of securities that can be traded in today’s markets, including stocks, options, commodities, futures, and currencies. For emerging traders, it can seem like a daunting task to learn the characteristics of each security type. Therefore, it’s often helpful to specialize. “When emerging traders don’t initially specialize in some segment of the markets,” Elder says, “they could be susceptible to over-engaging in whatever hot market segment comes along. Successful trading takes time, so it’s quite helpful to be dedicated and committed to a particular category.”
Most trading experts suggest that if you want to trade successfully, you need an edge. What do you know that will give you some degree of conviction? “If you don’t know the answer to this question,” he continues, “then you have no business trading. My answer: I know a few things about technical analysis because I wrote a few books on it. I can analyze charts with some degree of depth. I’ve been trained to recognize what is real and what is fantasy. And I’m extremely disciplined.”
8. Improper Timing
It’s very common for emerging traders to make timing mistakes. Quite often, a trader may have a good idea, but discovers that he or she bought the stock at an inopportune price. Timing a trade is never an exact science, but it’s important for traders to recognize that there are times when it might be prudent to lock in a profit or cut a loss.
“Smart people get in too early and beginners get in too late,” Elder says. “If you wait long enough, a stock may start to look like a good idea, but by then it’s often too late.” To illustrate this point, Elder said Google (GOOG) seemed like it would have been a good short when it’s share price recently dropped from 300 to 276, but the move had already been made. Waiting until a chart pattern has been fully established can often result in a missed opportunity.
According to Deel, smart traders should not look for just overbought or oversold conditions, but extreme overbought and oversold conditions. Taking advantage of extremes could help traders better manage their portfolio risk. However, there are no guarantees that the current trend for a stock in an extreme situation won’t continue.
In identifying trading opportunities, Deel uses a one-year time frame because there are a lot of data points. He is very conscious about timing his entry and exit points. “It’s those movements up and down that make money. I want to feel positive about a stock three days after I bought it. If not, something is wrong.”
9. Placing Improper Stops
Many traders incorrectly place stop orders, causing their positions to get stopped out too early and failing to capture much profit. It’s common for emerging traders to place stops according to a set percentage, such as 2%, or a set amount. How much a trader is willing to lose depends on his or her risk-tolerance.
Deel says that many traders have been given incorrect advice on placing stops. “You place stops according to what the market is telling you, such as support and resistance levels,” he says, “not according to profit goals. The market doesn’t care how much money you need to make.” Deel says that early in his career, he was constantly stopped out early, roughly 60% of the time in his estimation. “What I discovered was the market tends to move within a certain range under normal circumstances.”
Today, Deel no longer places stops according to a percentage amount or how much money he is willing to lose. “Now, when I place a stop, I let the stock’s behavior, or standard deviation, tell me where the best stop placements are. When I let the stock tell me where to place the stop, I get stopped out only about 20% of the time.”
Standard deviation is simply a range, both high and low, of a stock’s normal volatility based on a certain time period. Deel typically places three different stops using standard deviations. “Every stock has a specific standard deviation,” he says. “It’s as different as a fingerprint.” You can find the standard deviation by using Bollinger Bands, which give you stop losses and an upside price projection. Using Bollinger Bands, the stock price should be within the upper and lower ranges. “Ninety-five percent of all price activity falls within two standard deviations,” he says. He plots Bollinger Bands using an exponential calculation, rather than simple. “You can determine a stock’s high and low ranges and what it can move based on standard deviation and probabilities.”2
10. Not Calculating a Stock’s Risk-Reward Ratio
Many traders do not calculate the risk-reward ratio of a stock trade before they establish a position. A stock’s risk-reward ratio is the relationship between an investor’s desire for capital preservation at one end of the scale and a desire to maximize returns at the other end.
How do you determine a stock’s risk-reward profile? Through experience, traders tend to find their own comfort level for determining this ratio — there is no magic number. There are three common components of a stock’s risk-reward ratio: current stock price (a known); and a profit objective and stop exit price (both subjective). Calculating a profit objective and a stop exit for a trade often involves many factors, such as standard deviation or technical indicators, including Fibonnaci and moving averages.4
Deel looks for trades that give him what he believes is at least a 2.5 times greater reward (gain) than the possible risk (loss). At a minimum, if he calculates that he could lose more than $1,000 versus a $2,500 gain, he won’t make the trade. For Deel, 2.5:1 is his risk-reward ratio. But once again, that number is an arbitrary one that works well for Deel. A stock’s risk-reward ratio can be different for each trader based on personal preference or the particular type of trade being considered.
“Every stock is a turkey until proven otherwise,” he says. “This is part of the screening process of a stock.” Deel says he’s very picky about the trades he makes. “I’ve sat by great traders who see a perfect setup but not the risk-reward. They get in, and it reverses. If I’m going to risk a dollar on a stock, I want to estimate that I can make $2.50 or more before I make the trade. Otherwise, I move on to the next stock.”
 
A stock’s risk-reward ratio is the relationship between an investor’s desire for capital preservation at one end of the scale and a desire to maximize returns at the other end.
 
By risk 2.5 to 1, if the trader gets 7 losses and 3 profits out of 10 trades, he remains profitable as well i think.
 

githurai

New Member
I am not sure whether it is I alone that sees your list starting from number 7. Where is numero uno to numero 6?
 

broforex

Member
Margin is always the important thing to make any decision (sell / buy) be careful if your broker use the great number of margin requirements, it is not good for your trading activity. That's why I told you to join FreshForex, not only a small number of margin requirements, but also you can get the lowest spread (0 spread) I think it is good enough for your trading activity, so now go to FreshForex and start your trading.
 

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