There is no doubt that an
effective trading strategy can significantly improve your trading performance,
there are also certain points and strategies that you should avoid. Here are
the most important:
- Trading highly illiquid markets –
Market liquidity depends on the number of buyers and
sellers at each price level. A highly liquid financial instrument like the
EUR/USD pair or stocks of blue chip companies like Apple will have a large
number of market participants willing to enter the market at almost any
price level around the current market price. This reduces the volatility
of the security or currency pair, but also the trading risks involved.
Illiquid financial instruments can fluctuate greatly even with small
trading orders, which can quickly lead to large losses.
- Scalping strategies –
Scalping is a popular short-term trading style that
attempts to take advantage of very small price movements on very
short-term time frames. Fast paced and exciting, scalping attracts many
traders, especially those who are just starting out in trading.
Unfortunately, these traders often suffer heavy losses. To be consistently
profitable with scalping, you need experience, discipline, and nerves of
steel. First, learn how to trade profitably using longer-term trading
styles like swing trading and day trading before jumping into scalping.
- Holding trades overnight / over the
weekend – Any time you decide
to hold a trade overnight or over the weekend, you may be exposed to
adverse market events that can result in losses. This is especially true
when trades are held over the weekend.
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