The top 3 mistakes made by online traders and how to avoid them

Online trading platforms have made it possible for even the most novice traders to transact in financial instruments such as bonds, cryptocurrency, stock indices and forex. But, while opportunities to realise lucrative returns flourish, there are several pitfalls that traders need to avoid, Kamogelo Mosime, Partnership Manager at Tickmill, explains.

“Even with access to real-time financial data, market research and statistical information, traders can make costly mistakes – most of which come down to basic human error or misjudgement. Fortunately, with the maturity of many of the current markets and the growing volume of traders with various levels of experience, we have a golden opportunity to identify these routine snags and learn valuable lessons on how to guard against them.”

1. Focus on facts, not feelings

Be careful of emotional trading. Inexperienced traders often fall prey to their own emotions – particularly fear and greed. One of the most valuable skills in online trading is emotional discipline and resisting the urge to make impulsive decisions. 

“Psychological and cognitive errors can influence your decision-making – often for the worse. The first step in avoiding these kinds of mistakes is to be aware that our own biases, feelings and opinions can get in the way of clear, rational thinking. 

The best way of counteracting this is to formulate a trading plan and stick to it, regardless of the behaviour of the market. Over time, making data-based decisions informed by facts rather than feelings will allow traders to grow in confidence and see the tangible fruits of trusting their plan and keeping their eyes firmly fixed on the desired outcomes. 

2. Research first, act second

When traders make decisions based on what they believe to be ‘inside information’ or predictions based solely on their instincts, they run the risk of suffering substantial losses when factors beyond their control come into play. 

Before initiating a trade, it is crucial to understand the market dynamics, analyse trends, and evaluate the potential risks involved. Several analytical tools can prove indispensable in this regard. These include timelines of each instrument’s financial performance over a few years, graphical representations of how the market has fluctuated, and expert analyses. 

One of the greatest assets that any trader can have at their disposal is the willingness to embrace ongoing learning and immerse themselves in the technicalities of the markets. If your online platform offers resources that can enable learning, you should use this to your advantage and familiarise yourself with how different datasets are interpreted.

With the view that traders need to be equipped with the most reliable data to inform their strategies, Tickmill offers an Advanced Trading Toolkit. Via the toolkit, traders can do a deep dive into various options, looking at aspects such as sentiment, which tracks how the market feels about a certain listed entity or instrument.

3. Keep an eye on the risks while striving for the rewards

By being impulsive, traders can become overly focused on the ‘reward’ dimension of investing and not as focused on the ‘risk’ factors involved. For example, many traders overlook setting stop-loss orders or fail to define an acceptable risk-reward ratio for their trades. Without proper risk management, losses can quickly escalate, leading to significant financial setbacks. Traders should establish clear risk parameters, determine appropriate position sizes, and consistently adhere to their risk management strategies.

At its most fundamental level, successful online trading relies on the ability to constantly weigh up these aspects and make calculated decisions. Doing so skilfully involves striking a delicate balance. But with strategies like using a trading plan, setting goals realistically and keeping a trade journal, traders can maximise their potential earnings and walk away satisfied that they have made the best decisions within the parameters they have set for themselves.