If you know the pitfalls of trad?ing, you can easily avoid them. Smallmistakes are inevitable, such as entering the wrong stock symbol or incorrectlysetting a buy level. But these are forgivable, and, with luck, even profitable.What you have to avoid, however, are the mistakes due to bad judgment ratherthan simple errors. These are the ?deadly? mistakes which ruin entire tradingcareers instead of just one or two trades. To avoid these pitfalls, you have towatch yourself closely and stay diligent.
Think of trading mistakes like driving a car on icy roads: if you knowthat driving on ice is dangerous, you can avoid traveling in a sleet storm. Butif you don't know about the dangers of ice, you might drive as if there were nothreat, only realizing your mistake once you're already off the road.
Although trading involves risk, never treat it like gambling. You musthave a solid trading strategy, one which you plan, test, and revise repeatedly.You need to stick to this strategy, and never act on spur-of-the-momentdecisions. All you do when you act on a gut feeling is jeopardize any and allof the thoughtful planning you've done by giving yourself completely over tochance. Remember that you can never control where a single trade will end up,but you do have control over a long-term plan.
And don't evaluate your performance on the basis of individual trades.A gambler might think that a small loss is a failure while one huge risky gainmeans success. Traders should never think this way. Instead, judge yourself bythe consistency and profitability of your overall strategy. This is the onlyway to stay in control of your trading success.
To do this, of course, you have to build a solid strategy. This meansdeveloping a set of pre-defined rules that you follow consistently. You shouldset goals for each week, or possibly each month (but never for a single day, asthere are too many things you won't be able to control over such a short periodof time). Next, decide on realistic profits and losses for each trade. Then,according to these markers you've set for yourself, carry out your plan withoutexceptions.
If your set profit for a trade is, say, $300, sell when you reach thatmilestone, even if you have a feeling the stock will rise. Otherwise, youcorrupt your plan with too much risk, and you'll never know if your overallstrategy was successful or not. You may have gotten lucky with one trade, butyou haven't determined any kind of consistency.
Keeping to a strategy will allow you to revise what you're doing,learning which goals and limits will work and which won't. Straying from yourstrategy teaches you nothing useful that you can apply over the course of yourtrading career. So, while you may gain a few hundred, or even thousands, ofdollars on a single trade, who knows how much knowledge you sacrificed,knowledge could have gained you tens or even hundreds of thousands of dollarsin the years to come.
