Did You Know The Main Mistake In Trading?

Did You Know The Main Mistake In Trading?

This is the reality: to become a successful trader is rarely achieved in a short time and instantly. Usually a trader will face a bad thing in trading and it's going to be a teacher as well as a very valuable experience.

Some traders will even the most bitter experience in trading. For example, until the capital runs out. However, it does not mean that to be a successful trader must ail, but more importantly we can learn from mistakes. There is an interesting phrase from the book "Reminiscences of a Stock Operator", namely:

"There is nothing new on Wallstreet or in stock speculation. What has happened in the past will happen again, again and again. This is because human nature does not change "– Jesse Livermore

That is to say, approximately on the stock or the world trading is actually nothing new, what happened in the past will happen again in the present moment so on. This is caused by human behavior doesn't change.

So this means that the problems encountered by each trader is actually the same as the current problems faced by traders in the past either 10, 20 or 100 years before. The cause is quite simple – apart from the factor of technological advancement and innovation – we stay as a human who has emotions. The difference is simply that our emotions can be a barrier for us to make the right decision.

The Biggest Mistake

Before I mention the biggest mistakes in trading we do, try to recall the bitter experience what you've experienced while trading? He. .. He. .. I know, trying to remember or opening old wounds that are very painful, but few of us are willing to learn from the mistakes that we have done. To quote an old saying: "experience is the most valuable teachers".

Why trading we do always wrong instead of profit we gain but loss that we get, just answer the following questions:

Do you have a trading plan?

If you do have often violated the trading plan that you have piles?

If you let the price move is not in line with your position and you leave it without any anticipation?

If you set a limit on your losses?

Do you know when to close a position?

If the answer to number one is "no", then you've done the first error; If the answer to number two "Yes" then you already perform the second mistake; If the answer to number three "Yes" then you already perform the third error, if the answer to number four "no" then you already perform the fourth error; If the answer to number five "no" then you make mistakes.

All of the above questions will eventually become the main reasons one conical which are often done by traders. When you are not making mistakes from the five questions above actually still there is one reason why we still experience a total loss. The main mistake that we do that is we do not understand the concept of risk reward ratio.

As an expression of Jesse Livermore above where we are only human, and human nature is definitely always want to win or else in trading always want to profit, there is not a single human being who wants to suffer losses.

Well.. This is the nature of man are driven by emotion always wanted to profit sometime forget about logic and make the wrong decision. This means that although we often benefit compared to the number of transactions of our loss, why in total capital we still reduced?

As I said above, it's basic human nature always want to profit, like the picture above if we see a number of trading percentase profit (blue trunks) is greater than the amount of the trading loss (red rods) in almost all currencies. Then the question that arises is not that means good and we feel happy, true isn't it?

But sadly from the picture shown above, i.e. the amount of the profit percentage is greater than the loss yet to guarantee overall we will increase our capital or profit. How come like that?

This is because the factors of risk and reward ratio, risk reward ratios i.e. comparison between how big losses with profits that we want to get. Well try to ponder in your heart respectively. When you are trading and the price moves are not in line with the position you take, if you'll hold the wrong position in the hope the price will be turned back? This is quite greedy, when in fact aren't we should be afraid of?

Or if the case is reversed: that is when the position you take right and the price moves in line with the position that we take, whether you will immediately close the position for fear of price will be turned back?

Essentially a habit which we often do when we will hold the minus floating but when the floating profit we hastily closed position, true isn't it?

Back again to the concept of risk reward ratio. To understand more about risk and reward note the illustration below:

A Trader with 10 times the profit transactions and transactions 7 3 transaction loss, if we see a glimpse of that cool is not A trader. But A trader sets the risk reward ratio of 5:1, for example, a 10 pip profit target then limits the disadvantage of 50 pips.

Then the Trader A profit amounting to 70 pip (7 x 10 points) while the loss experienced – 150 pips (3 x 50 PIPs), so in total the trader is still A loss of 80 pips (70 pip – 150 pip).

A trader B 10 times deals 4 times the profit while 6 times loss, if we see a glimpse of trader B is more ugly than A trader instead. But trader B establish risk and reward ratio is 1:5 are reversed, so for example 50 pips profit targets then limit the risk of only 10 pips.

Then the Trader B profit of 200 pips (4 x 50 pip) while the loss is experienced only minus 60 (6 x 10 pip) so overall trader B still profit 140 pips (200 pip – 60 pip).

So in fact the essence of trading that is not how often we profit, but more important is how much profit we gain when our position was correct and how small the loss we experience when our position was wrong. Practice continued to use the demo account.

Plan your trade and trade your plan.

Piratebay 6:07:00 AM Komentar