Traders’ Bad Habits : Chasing Trades

Do you want to know how to avoid one of the worst traders’ bad habits? Watch our latest video and learn how to avoid chasing trades.

Huge Trading Mistake – Avoid the mistake of chasing trades

I would say that the most dangerous thing to do as a trader is to chase the trade. Unfortunately, this is an extraordinarily common event, as people are trying to become wealthy overnight. Generally, by the time the overall public gets wind of a trade, it’s far too late. As I write this article, the most recent mania is Bitcoin. While it is easy to say that Bitcoin should continue to go higher, when you look at the charts, something else is obvious: buying at this high level is essentially “chasing the trade.”

The news is full of stories about how Bitcoin could become $1 million a coin, and that we have gained 1000% plus this year. This in and of itself should be a red flag, because in the last couple of decades we have seen this phenomenon before. Unfortunately, people focus on getting rich quickly, rather than using common sense. It wasn’t that long ago that models and rap stars refused to be paid in anything but Euros, where it was essentially at the highs. At that point, there was also talk of gold ATMs, and the one thing that both the Euro and gold has in common is that they both fell precipitously shortly afterwards.

This is a commentary on where Bitcoin is going to go, but buying at this high level is certainly “paying up” for an uptrend that has been going on without interruption for far too long. A simple 50% correction could mean thousands of dollars going against you in the move. Even if we were to rebound, it’s very difficult to hang onto a trade if it is behaving like that, racing towards the bottom like a sign of Armageddon. While it is difficult to get over the fear of missing out, the reality is that markets always pull back. Chasing the trade is an excellent way to pay far too much for an asset and start losing money.