Do you ever wish you could turn back time to avoid making a past mistake? At one time or another, we have all been known to say “I wish I knew then what I know now”.
Online trading is certainly no different. Errors can and will be made from time to time. However, there is an excellent way to avoid some of the most common pitfalls.
Let’s take a quick look at three ways to start from a strong foundation while steering clear of the profound delusions that have hindered other traders.
The Unfortunate Trait of Loyalty
This first observation may sound a bit strange, but it is absolutely relevant when referring to online investing. Many individuals become particularly attached to a specific asset or stock; believing that success is “just around the corner”. As a result, they possess a holding for entirely too long.
A perfect example can be seen in those who remained steadfast to AIG even when dark clouds were overhead. Always look at an investment from an objective perspective in order to avoid such an unfortunate outcome.
Excessively High Turnover Rates
Many online investors become involved due to the perceived liquidity of a certain market sector (such as the Forex industry).
Unfortunately, liquidity can often come at a price. High turnover rates can quickly lead to mounting transaction fees. In turn, these will inevitably eat into your profit margins. Such trades should be taken in stride and it is only advisable to embrace a short-term mentality after appreciating the underlying fundamentals.
The good news is that you can easily find a free resource online to learn Forex trading and accelerate your learning curve to becoming a successful trader. It is also wise to find a cutting-edge online investment platform such as CMC Markets. The fees and associated commissions are much lower when compared to other firms.
A Lopsided Portfolio
Many novice investors become entirely too focused on one or two holdings. As a result, their portfolios lack diversity. For example, let’s imagine that one individual has become addicted to the price of gold. While this might represent a relatively safe haven, it is still not able to provide the balance required to stave off potential volatility (such as if the Federal Reserve suddenly decides to modify its benchmark interest rates).
The end result is that the aggregate value of the portfolio will drop and the only real options are either to sell at a loss or to wait for a more bullish climate. A diversified portfolio is able to absorb such losses while providing a greater degree of long-term stability.
While these three mistakes might appear to be somewhat straightforward observations, you would be surprised to learn how many traders fail to heed their warnings. This is why it is a great idea to constantly re-evaluate your strategy so that you can catch any of the warning signs mentioned above well in advance. There is nothing wrong with learning from the errors of others.