Listening to others & following tips.
Newbies invariably listen to others & follow tips. Sometimes d tip may be successful, but over d longer term, it’s a loser’s game.
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Reacting to news:
Inexperienced traders will hear about companies reporting good earnings or the quarterly GDP growth numbers were ahead of forecast, and the next day they’ll go long only to be stopped out at a loss.
It takes a long time to understand that once the news arrives , the information is already old. The market has already anticipated and reacted to the news and new traders don’t realize this.
Asking others for their opinions:
New traders often seek out the opinions of their brokers, friends and family for their opinions on where the market is headed & what to buy/sell.
Averaging entry levels:
New traders are usually the world’s worst losers. They hate losing and will try to avoid it at all costs. The usual response is to ‘‘average’’ on the way down.
Failing to use stops:
New traders rarely trade with stops or preplanned exit points. It doesn’t occur to them that they could lose until it’s too late and too costly.
Failing to have a trade plan:
Listening to tips, reacting to news, asking others for their opinions, averaging entry levels & failing to use stops r clear signs that traders r trading without a trade plan. Remember,trading w/o a trade plan vl catch up with u sooner or later.
Believing technical analysis is the only answer:
Technical analysis refers to d study of past prices 2 gain insight into future price movements. however, many people make d common mistake of believing technical analysis is all they need 2 make money,
Believing more is best:
As relatively new traders embrace technical analysis, they fall into d common mistake of believing complexity vl provide d answers. Instead of realizing TA is not enough by itself, they believe adding more technical indicators is the answer.
They invariably fall into d trap of lighting up their screens with as many indicators as possible. However, attempting to explain every move in d market is a recipe for disaster. If the indicator didn’t predict a strong gap up, they’ll search for one that would have.
This is known as the first stage of ‘‘curve fitting,’’ in which novice traders will attempt to mould their collection of indicators to fit past data.
Falling into the prediction trap:
Novice traders are seduced into believing it’s possible to consistently know where the markets will head. This is appealing because it holds out the possibility of certainty in trading by knowing when to buy low and when to sell high.
Picking tops and bottoms:
Most traders make the common mistake of looking to sell tops and buy bottoms.
And end up buying extreme weakness and selling extreme strength.
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