3 Trading Mistakes To Avoid

2020-06-22 | Simpler Trading Team

Much can go wrong in this market.

Any tips to help avoid a mistake is worth a look.

Here are a few hints to navigating the market’s volatility:

Check Your Position Size

Everything you’ve been doing eventually leads to a trade. When you have all your “take the trade” elements lined up, don’t go overboard.

Your position size — how much of your total account you have invested in a trade —should be well within your already established risk management plan. Never be too confident.

This played out recently when a tech company went south fast. The tech sector has been strong, even through the pandemic. But Wirecard, a company with a strong market history that provided payment services worldwide, crashed. Turns out the company couldn’t find $2 billion in cash on the books.

The company looked good, the stock had been trending strong for a long time, but anyone with a heavy position size in that ticker is now hurting.

Manage the size of the trade to avoid getting caught in such a sudden and unexpected chain of events.

Don’t Leap Too Soon

Follow the rules — your rules.

Every session of trading there seems to appear a tempting ticker to take… if only you bend your rules for entering a trade. This temptation leads to trading trouble.

Wait before leaping by making sure all your setup requirements are met. A valid trade setup is more valuable than any potential for a “hot stock” to take off.

This also includes piling onto the latest rally or dip. No matter how good it looks, insightful traders are already setting up to take advantage of those who rush into a “hot” trade. Make sure the setup fits your trading plan and risk tolerance.

Cash In When You Can

Traders who follow their own rules, wait for valid setups, and execute trades within their plan stand a higher probability of cashing in.

So take the money.

When a setup works, it makes sense to take the win either for some or all of the gain. If you stay in the trade, enjoy the cash you take out and keep working the trade.

The goal of a trader is to make money, so take advantage of the wins and keep moving.

We Saw: markets managing twists, turns to the positive — 

  • Gold pushing highest level in years
  • Banks sitting on big influx of cash
  • Data showing virus on the rise

We’re Watching: setups playing out through the week —

  • Opportunities with a little more risk
  • Tech sector doing the heavy lifting
  • Setups in: PTON, NFLX, TSLA, SPX

Does it make sense to “see” price moves before they happen? Learn about catching “pops and drops” in a volatile market.