Common Mistakes Traders Make During Volatile Markets

Common Mistakes Traders Make During Volatile Markets

Market volatility is a phenomenon that can make the most experienced trader make a mistake in the heat of the moment. However, taking a moment to assess if you are making any of these mistakes should help you avoid making losing trades. 

  • Increase your trade size: many novice traders get carried away by market movements and increase their trade size in the expectation of increased profits. 
      • Deviating from your trading plan:  it is easy to get sidetracked during sudden market movements from your trading strategy. Just run through your plan before you book any trade in volatile markets.
      • Get greedy: the markets seem to be favoring a sector that you didn't want to get into earlier, and you feel that your portfolio performance can improve by going into the industry. Think it through, see how the trade will fit into your portfolio if the volatility trend reverses. If you can ride out the reversal, then go for it. If not, sit tight and ignore!
  • Ignoring trade time frames: This is like the point above.  If a trade in a sector you timed for a certain period is doing well, don't give it any extensions. If it hasn't yielded your expected returns so far, the chances are that it won't after you extend it.
  • Getting tunnel vision: it is easy for traders to develop tunnel vision, particularly if a specific company or a sector is gaining. Jumping on the buying or selling bandwagon is usually a bad decision.
  • Not booking Losses: it is usually wiser to book a small loss and exit a trade instead of continuing it and growing your losses. Volatility or positive movements can be a trap that will eat up your capital.
  • Not Taking Profit: if a trade has made you a profit, don't extend it. Stick to your strategy, and don't get trapped by volatile trends.
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