If you know the pitfalls of trading, you can easily avoid them. Small mistakes are inevitable, such as entering the wrong stock symbol or incorrectly setting a buy level. But, these are simple mistakes that might even turn out to be profitable with a little strike of luck. But, while small errors are forgivable, bad judgment is not. Poor judgment can destroy your whole trading career, and not just a few trades.
Think of the analogy of driving a car on icy roads. You already know that driving on ice is dangerous, so you would not drive through an ice storm. However, if you were unaware of how dangerous it is, you might very well get in your car and into an accident.
One of the first mistakes new traders make is sinking a lot of wasted time and effort into predicting legitimate trends. There are many complicated formulas, indicators and ways to predict trends. They plug in so many indicators on the screen, that the screen is going to be overloaded by them. As helpful as they are, they can distract someone from being able to make simple decisions.
The biggest problem here is that some new traders want to learn everything there is to know at once. Some even assume that complicated systems are better at predictions. This is almost always an illusion. No matter how many tools one can rely on, it is always important to remember how the market should work: You buy when stocks go up and sell when they are going down. Since you want to buy and sell early in a trend, the most important thing to discover is when a trend begins. Indicators rarely display this kind of information.
Stick to the basics. One of the easiest ways to identify a trend is to use trend lines. Trend lines show you when prices follow a pattern of higher highs and higher lows (an uptrend) or a pattern of lower heights and lower lows (downtrend). They can show you the upper and lower limits of an uptrend and of a downtrend, but most of all, they can show you when the trend changes.
You might need to study trend lines for a while to become familiar with them, but once you are, they can be a wonderful tool to predict trends. After you have made use of these basic indicators, you can use more sophisticated methods to determine the correct buy or sell point. Some of the systems available include moving averages, turtle trading and RSI (Relative Strength Index). But only use them after you've determined if the market is trending or not.
Think of the analogy of driving a car on icy roads. You already know that driving on ice is dangerous, so you would not drive through an ice storm. However, if you were unaware of how dangerous it is, you might very well get in your car and into an accident.
One of the first mistakes new traders make is sinking a lot of wasted time and effort into predicting legitimate trends. There are many complicated formulas, indicators and ways to predict trends. They plug in so many indicators on the screen, that the screen is going to be overloaded by them. As helpful as they are, they can distract someone from being able to make simple decisions.
The biggest problem here is that some new traders want to learn everything there is to know at once. Some even assume that complicated systems are better at predictions. This is almost always an illusion. No matter how many tools one can rely on, it is always important to remember how the market should work: You buy when stocks go up and sell when they are going down. Since you want to buy and sell early in a trend, the most important thing to discover is when a trend begins. Indicators rarely display this kind of information.
Stick to the basics. One of the easiest ways to identify a trend is to use trend lines. Trend lines show you when prices follow a pattern of higher highs and higher lows (an uptrend) or a pattern of lower heights and lower lows (downtrend). They can show you the upper and lower limits of an uptrend and of a downtrend, but most of all, they can show you when the trend changes.
You might need to study trend lines for a while to become familiar with them, but once you are, they can be a wonderful tool to predict trends. After you have made use of these basic indicators, you can use more sophisticated methods to determine the correct buy or sell point. Some of the systems available include moving averages, turtle trading and RSI (Relative Strength Index). But only use them after you've determined if the market is trending or not.
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