If you know what can go wrong in trading, it's easy to avoid them. Small mistakes happen all the time, like typing in the wrong stock symbol or setting the wrong buy level. But these are easy to forgive and, if you're lucky, can even make you money. What you should try to avoid, though, is making mistakes because you didn't think things through well. These are the "deadly" mistakes that can ruin not just one or two trades, but whole trading careers. To avoid these pitfalls, you have to keep a close eye on yourself and work hard.
Think of trading mistakes like driving a car on icy roads: if you know that driving on ice is dangerous, you can avoid travelling during a sleet storm. But if you don't know how dangerous ice can be, you might drive on it as if it's not a problem and only realise your mistake after you've gone off the road.
Greed is a common and bad mistake. Traders are greedy by their very nature, since they start trading to make more money. It's not dangerous to want more money, but it is dangerous to want it too quickly. Every trader wants to get rich, and they all want to do it in one trade. And when they do that, they lose.
Consistency is the key to trading success, not a "grand slam." There are a lot of new traders out there who think that if they just make one great trade, they'll become rich and never have to work again in their lives. This is a nightmare of a dream. Traders who are smart will know that right away. Consistency is the best and, most of the time, the only way to make a lot of money in trading. And most likely, this money will be made in small amounts. Unfortunately, most traders try to win big, which means they lose big.
It makes sense that traders want to make more money each time they trade. Which would you rather have: a fifty dollar bill or a five dollar bill? It's clear what to do. But it's not that easy when it comes to trading. If you don't take the $5 bill, you could lose $50 or more of your own money. The most important thing to remember is that you can take ten five-dollar bills over a longer period of time, even though you can't take the fifty-dollar bill right away. And in the end, you get the same amount: $50.
And that's the point: small, steady profits add up over time. This doesn't mean there will never be a big winner. In options trading, for example, it's not uncommon to make 100%, 200%, or even 1,000% in a single trade. So, it's not impossible to make a lot of money, but you shouldn't count on it. If you always expect this kind of number and won't settle for anything less, you're setting yourself up to be disappointed.
Small but steady profits are the key to trading success. The key is to be consistent, because if your profits are steady and predictable, you can use leverage to trade bigger. So, you must know when to get out of a trade while still making money. Don't give in to the urge to stay home "just a little longer, just a little more."
