3 Trading Mistakes that You Should Avoid

What are the top three things a trader or investor must never do in the market?

The top three would be:

1. Avoid Overtrading

Overtrading is one of the biggest mistakes traders make, and it often stems from emotions. No one has a 100% success rate in trading or investing. For example, someone might have a strike rate of 60% or even 70%, but inevitably, you will lose money three to four times out of ten.

Typically, when traders face losses, they try to recover them by becoming more aggressive, leading to overtrading. This mentality can further amplify losses. So, the first and most important rule is: don’t overtrade.

2. Avoid Overleveraging

Another common pitfall is overleveraging. When traders try to recover losses or increase their profits, they often increase their bet size, which can expose them to much higher risks. This approach is not sustainable and can lead to significant losses.

To manage your risk effectively, always avoid overleveraging your positions.

3. Avoid Averaging Losing Trades

Averaging losing trades is another mistake to steer clear of. For example, if you buy an option at a certain price and its value drops by 20%, some traders buy more. If it drops by 40%, they buy even more. This approach only compounds losses.

Instead, focus on averaging winning trades. Add to your positions when they’re performing well, and exit all positions if the trend starts to reverse. This way, you can ensure a net profit.

In Summary

The top three things to avoid in the market are:

• Overtrading
• Overleveraging
• Overaveraging

By avoiding these common mistakes, you can manage your risks better and improve your chances of success in trading or investing.