Over exposure and lost opportunity

Blue avatar for FOREX.com guest contributors
By :  ,  Financial Analyst

Opening a trading account often fills the trader with excitement and anticipation of earning high returns for future enjoyment.

Yet many approach the markets without a trading plan and worse, little knowledge about the functions of the market and the trading platform being used to access that market. It is the purpose of the demonstration account, often referred to as the “demo” account to help the trader learn to navigate the platform and the markets, before any real cash is offered at risk.

Real time demo accounts are the practice accounts to help you find your way around and to test trade your ideas before committing to a real time account.

Over time as the trader builds an account on the demo platform it will give confidence to the trader and confirm the trading ideas. The demo platform can be used to test not only your idea’s but trading idea’s around news announcements and trading idea’s put forward by others using online trading chat sites and can be used to test the effectiveness of that “hedge” against your real portfolio.

One of the real risks for those wishing to gain more experience is rushing to beat the markets and the fear of missing out as those perceived trades go by.

The over exuberance comes from our human bias’s, one of them is the, current moment bias, confirming we would rather experience pleasure in the current moment while leaving the pain for later. This bias can lead the trader to over trade and build overly large positions in an attempt to gain the immediate effect of success.

The public domain is an overload of markets opinions and statements of unsubstantiated facts that are plentiful and ultimately meaningless. That is unless they have the backup statistics attached as proof.

Analysts often make “calls” on the future direction of stocks, and rarely make public the actual track record of following their calls. Yet traders looking for an edge will follow the recommendation as if it is fact, this can lead to building overly large positions, because the research can be produced that shows why a position can be entered into.

Lost opportunity.

Consider the ramifications, as markets change and further news come out, analysts and chat room traders are drawn to the current new news, and rarely if at all follow up on the past calls.

The hapless trader is left holding a position, and often a large position without any market or real trading experience and without any further confirmation news or research. When leverage is added to the equation every market tick up or down will bring an emotional reaction, this can be time consuming and physically draining.

Now consider the further ramification of lost opportunity while account funds are tied up, along with the emotional costs, waiting or hoping for a better outcome than the current situation. Properly constructed trading plans and money management strategies will keep the trader protected from unforeseen circumstances.

Trading strategies or trading plans allow the trader to build confidence in their own research or highlight the weakness in the trading idea before real money is put at risk. The demo account allows you to practice trading methods and money management.

You can follow my trading account at City Index here: https://www.cityindex.com.au/market-analysis/follow-garys-equity-trades/?trading-diary=trading-diary and the rationale behind the decision process by logging onto the Monday webinar here: https://www.cityindex.com.au/market-outlook-webinars/.

Related tags:

Open an account today

Experience award-winning platforms with fast and secure execution.

Web Trader platform

Our sophisticated web-based platform is packed with features.
Economic Calendar