20 Common Mistakes Beginners Do When Trading Stocks.
20 Common Mistakes Beginners Do When Trading Stocks.
The first trade is always the most exciting. However, as
with all other things in the world, a perfect start can only be followed by a
few mistakes. Even if you are aware of the possible trading mistakes that
beginners make, it is very likely that you may still fall into one or two of
them at some point. The best way to avoid these pitfalls is to be fully
informed about them and learn from others experiences. This article will
describe some of the most common trading mistakes made by the beginner.
1. Trading without a plan
Trading without a plan is like flying without a destination.
You may be able to fly but your chances of hitting the ground are more than
someone who has a destination. Trading without a plan is like driving your car
on the road without looking at the direction you are headed to. You may reach
your destination but in the process, you’ll have to make a lot of unexpected
detours and spend more gas money! In trading, as in life, having a goal helps
to keep you laser focused on your objective and to determine the best way to
get to your goal.
Trading without a plan is a very common mistake that newbie
traders make. Traders lose more money than anything else in the market because
they are not trading with a plan. So, it is very important that you have a
trade plan. It is like you are going to war – you can’t go in there without a
plan. Sure, you might be able to make opportunities on the way, which you would
have never planned for but you have to have a plan going into it.
A
trading plan is like a map on your journey. It shows the way. It is not a
guarantee that you will hit your target, but it gives you a better chance to
make it through.
2. Failing to identify the primary drive behind every trade
Understanding what is driving each one of your transactions
can help ensure that all your investment decisions are clear and logical.
Developing a trading strategy can help you answer this question. As a rule,
every trade should be aimed at making the maximum possible profit on an
investment. The more your returns on each transaction are, the greater your
chances of doubling or tripling your capital in the long run.
3. Trading without any money management rules
Trading in itself is a risky thing to start with. Trading
without money management can be the biggest risk of all. If you want to pursue
trading as a career, you need to learn the basics of money management. Money
management is required for traders for the following reasons:
1. No trader can predict the future. In fact, no one in this
world can predict the future. But traders do believe that they can predict the
future. This is what causes them to trade without money management.
2. Trading without money management can lead to huge losses
and financial ruin. This is the most important reason of all. Without managing
your risk, you may end up losing all your money.
4. Forgetting about limits
The very idea of placing limits on your financial
transactions may be hard to swallow considering how many successful investors
there are out there who never set up any boundaries for themselves. Remember
that every trade should have its own time frame which will become an integral
part of your overall investment plan. There’s nothing wrong with taking profits
when they’re available; if fact this is what everybody does whether they make
it known or not.
5. The spread trap
Many traders get caught in the spread trap, which is when
they forget about trading with real money and allow themselves to be driven by
greed. They can’t stand not taking part in all of the action because they are
afraid that if they miss this one great chance to make a killing they will
never get another opportunity like it again. The most dangerous thing you can
do when you’re new to trading is try to catch “every” little move up
or down; let your profits run with the market instead of trying to guess its
next movement.
6. Refusal to accept losses
Everyone knows that even successful traders sometimes end up
on the losing side of a transaction, but many are still unwilling to admit this
fact. Accepting occasional losses as an inevitable part of success is the only
way to keep your emotions in check and remain a successful trader for years to
come. Remember, if you find yourself constantly racking your brain for new
ideas on how to prevent yourself from losing money, it’s probably time for you
to take a break.
7. Believing that you're always right
It is essential that you clearly understand that when it
comes to trading, nobody is infallible. Although you should stick these
principles as closely as possible in order not to lose too much of your
hard-earned cash, at some point along the road somebody will figure out a
better strategy than yours and they will eventually prove themselves more
worthy of success. You must be ready to admit defeat gracefully whenever this
happens because continuing with an outdated approach will only lead to more
losses.
8. Jumping in too quickly
One of the most common mistakes that beginning traders make
is trying to get on board with every profitable action which takes place during
their sessions on demo accounts. The moment they see news updates, whether real
or imagined, they immediately implement their strategies without even checking
the market conditions first; this often results in missed opportunities and
wasted capital. Learning how to manage your emotions is one of the most
important parts of trading successfully.
9. Taking profits at random times
For some reason many novice traders cannot wait to take
profits “on time” instead of waiting for it to reach its peak value
before taking options. This can be costly if you give back all of your
hard-earned gains perhaps in the last hour of the trading session because you
just had to have that extra cash.
10. Relying too much on technology
While automated trading systems are indeed useful when it
comes to entering and exiting trades quickly, they are not bulletproof. If you
don’t have any experience in reading charts yet, do yourself a favor and learn
how to read them before becoming dependent on anything else. The easier it is
for you to spot opportunities by yourself, the higher your chances will be of
remaining successful long term.
11. Not managing risk properly
Traders sometimes find it difficult to manage risk in their
trading. It is extremely important to analyze every trade before taking it. It
is also important to know about various aspects of the trade including your
entry and stop loss points. Many traders are eager to make quick money, but they
forget one important thing that trading is not a get rich quick scheme. If you
are not comfortable with the trades, then you should avoid the trade no matter
if it is highly profitable or offer high return. In trading, you can’t win if
you don’t play, but you can’t lose if you don’t bet.
Sometimes
traders get so excited about setting up their entry points that they forget
about measuring potential losses properly beforehand. Avoiding risk is not a
strategy. Successful trading is about taking calculated risks. Never bet on a
sure thing but always bet on you to win. The most important thing to understand
about trading is how to survive. This means, being able to handle losing
trades. Trading requires a different mindset than the usual buy, hold and
sell. It requires the ability to think in probabilities, to accept risk,
and to accept failure as part of the game.
12. Taking a short-term view
An
excellent way to improve your chances of success as a day trader is by taking a
long-term perspective instead of focusing all of your efforts on outsmarting
other market participants one day at a time. In order to do that, you must be
able to clearly see what the overall trend is and where it’s headed within each
timeframe rather than getting stuck in trying to pick tops and bottoms moment
by moment. If you can become good at this, you will greatly increase your
chances of reaching consistent profitability.
13. Not paying attention to the bigger picture
Many novice traders get so caught up in their daily routine
that they forget to take a step back and look at what’s truly going on. If you
make it your business to learn about all of the different moving parts within
each market before jumping in, not only will you greatly improve your chances
of success but you might also be able to help others avoid making costly
mistakes.
14. Not trusting your gut
Believe it or not, there are plenty of people out there who
feel that following their instincts when trading is something to be avoided
rather than embraced. No matter how much you try to fool yourself into
believing otherwise, those who manage to win consistently over long periods of
time simply trust those same feelings even if they don’t understand where they
are coming from.
15. Treating trading like a game
There is no denying that attempting to take money out of the
market while having fun is indeed possible, but for some reason many beginners
just don’t seem able to tell when they are taking things too far. It’s one
thing if you experience an occasional setback while trying to get your feet wet
with demo trading, but it should never turn into something you dread doing
because it will invariably lead nowhere fast.
16. Trading without stops or targets
Another common mistake which novice traders make is avoiding
using protective stops and profit targets even though all other experienced
participants do so without ever giving them any thought whatsoever. Quite
frankly these safety nets keep the vast majority of people in the markets safe,
which is exactly why they are considered obligatory.
17. Not sticking to the plan
It’s
hard to imagine how you can have a strategy that works if you are not willing
to follow it through, even if it means taking smaller profits for the sake of
being patient. If you don’t put in maximum effort when trying to trade your plan,
stop expecting anything more than mediocre results.
18. Letting losses run too far
Some traders tend to get overly confident during their
winning streaks and forget about protecting their capital along the way, which
inevitably sets them up for failure sooner or later. On the other hand, those
who manage not to let this happen over time end up becoming successful.
19. Blowing off trading entirely
If you are not willing to do it right, then there is really
no point in doing it at all. Trading with your own capital is simply not for
everyone, so if you are not having fun or seeing any results whatsoever there
isn’t much point in being stubborn about it.
20. Making up your own rules
Everyone has an opinion on the markets these days, which is
why most of them will never amount to anything worthwhile especially when they
go against established rules that have been proven by time and experience. Even
though nobody can tell you what works best for you specifically, it does pay
off to learn from those who have gone ahead of you by observing their wisdom
over time.
Conclusion
Even the best traders make mistakes sometimes, but these
mistakes are easily avoidable if you’re aware of them. If you want to trade
stocks, then it’s important to learn from other people’s mistakes. We hope our
list helps you do that!