While the world’s financial markets and asset classes are relatively diverse in their nature, many of them pose similar challenges to investors across the board.
There are also universal rules that underpin the concept of investment, and how successfully you adhere to these will help to distinguish between successful and failed investors.
But what are the most common mistakes made by investors in their quest for riches? Here’s our pick of the three most troublesome errors.
Investing Without Knowledge
Knowledge is one of the key weapons within any trader’s armoury, particularly as far too many investors have little or no knowledge about specific options beyond traditional financial instruments.
However, this doesn’t stop investors from entering volatile and complex markets such as forex and opening lucrative positions, especially in an age where forex brokers make it so easy to access a wealth of asset classes.
Remember, it’s counter-intuitive to invest in markets without understanding their fundamentals or the most prevalent risks to your capital.
So, you’ll need to create time to understand each individual market and create a sense of determinism when investing, even when dealing with relatively simple assets such as stocks.
FOMO or Engaging in Emotional Trading
FOMO (or the fear of missing out) is a common human emotion, and one that happens to be particularly dangerous for investors.
The reason for this is simple; as emotive trading tends to drive ill-informed decision making, which may lead to losses that are disproportionate to your deposit (especially when dealing in highly leveraged markets such as forex).
Determinism can help you to avoid emotive trading, as it encourages you to focus on analysis and the underlying laws that govern price movements rather than yielding to instinct, fear or the emotions created in the wake of a loss.
Instead, try to focus on data and its analysis, while adhering as closely to your carefully cultivated trading strategy as possible.
Failing to Diversify
Whenever you start out in a market such as forex or stocks, we’d recommend that you initially deal in one or two assets that can be monitored with relative ease.
Currency pairings such as USD/JPY are renowned for their predictable price movements, for example, while both can be considered as relative safe havens in the market.
However, you should look to diversify your interests and portfolio in line with experience and profitability, initially by investing in new assets within a single market before branching out into additional sectors over time.
Once again, you’ll need to ensure that you’re informed before trading a new asset class, but the failure to diversify at all will leave your capital over exposed in a single market and minimise your chances of being profitable over time.