Common mistakes in trading
Most losses are not caused by bad luck. They come from a handful of habits that show up again and again, at every level of experience. Recognising them is the cheapest lesson you will get.
Investing money you need
Money earmarked for rent, bills or an emergency fund should stay away from any volatile market. If a fall would force you to sell at a bad moment, the position was too big or the money was wrong.
Chasing prices
Buying because an asset has already surged is a very human urge, and a costly one. By the time a rise is all over the news, much of it has often already happened.
Ignoring fees
Commission, spreads and conversion costs look small individually but add up, especially when a strategy trades often. Check the total, not just the headline number, on our fees page.
No exit plan
Deciding in advance how much you are willing to lose is far easier than deciding it in the middle of a fall. Write it down before you start.
Manual trading versus automated trading
With manual trading you study the market and place each order yourself. With automated trading a program follows rules you have agreed to, and does so continuously.
| Manual | Automated |
|---|
| Time needed | High, especially in fast markets | Low once set up, but regular review is still needed |
| Emotion | Decisions are affected by fear and excitement | Rules are followed consistently |
| Speed | Limited by attention | Watches many pairs 24 hours a day |
| Flexibility | You can react to anything, including news | Only reacts to what its rules cover |
| Main risk | Human error and lack of time | A flawed rule or a market that no longer behaves as before |
Neither is better in every case. Automation removes some human errors but adds its own, and it can never remove market risk. Whichever you choose, you remain responsible for the money.
The psychology of a trader
Markets are as much about people as numbers. Fear and greed drive many of the biggest moves, and they drive the decisions of the people watching them too.
Loss aversion
Losses hurt roughly twice as much as equivalent gains please us, which pushes people to hold losing positions too long in the hope of getting back to even.
Overconfidence
A few good weeks can persuade you that you have found a system. Luck and skill are hard to tell apart over short periods.
Herd behaviour
It is uncomfortable to disagree with a crowd, and comforting to follow it. Crowds are right often enough to seem convincing and wrong often enough to be costly.
Habits that help
- Set limits before you begin.
- Review at set times rather than reacting to every alert.
- Keep a simple diary of what you did and why.
- Step away after a large gain or loss before making the next decision.
Continue with crypto basics or the risk disclosure.