To say that stock trading isn’t easy would be an understatement of the year. Becoming a trader, whether a retail one or a professional broker, takes knowledge and sacrifice.
The road to learning how to recognize good opportunities is paved with losses and bad calls. While we can’t turn you into a pro overnight, we can point a few common mistakes that you need to avoid!
Lack of Strategy
Trading is all about following a strategy. There has to be a plan in place if you’re serious about investing. Buying stocks without a plan opens you up to a high level of unnecessary risk. What is a trading strategy?
It’s a simple plan derived from the information available on the stock in question. By making a trading strategy, you’ll know how much to invest in a specific stock, when to exit and when to average up. Most importantly, you’ll know what amount of loss is acceptable and when to call it quits.
Buying High, Selling Low
The hype is a powerful thing. A critical piece of news, released at a critical time can have a massive impact on the price of a stock. What many new traders do wrong is buy the hype and then enter risky positions when the stock is at its highest.
Usually, what comes next is a strong negative trend that scares people into selling, ultimately leading to a massive loss. One way to avoid becoming a victim of the hype is to learn technical analysis. It’s not easy, it takes time, but it’s the only way to learn how to buy stocks and not end up with a loss. Technical analysis represents the core of any kind of trading, including stocks.
Never Go All-In on Shady Stocks
Portfolio investing is a thing for a reason. Diversifying stocks means diversifying the risk that comes with trading. Yet, beginner traders often find themselves tempted to invest all of their money in a stock that looks good at that particular moment. You get overwhelmed with the idea of finally becoming your own boss and making enough money to pursue your dreams. It’s easy to get carried away.
Will this result in a loss 100% of the time? No, but at that point, you’re not investing, you’re gambling. You should never invest all of your money in one stock, and you should always invest only as much as you’re prepared to lose.
Having diamond hands and holding through a tough period requires guts. However, there’s a massive difference between holding onto a good stock in a bear market and holding a losing stock in a bull market.
You need to define your exit points and understand that some stocks aren’t worth holding past a certain point.Use stop-loss orders whenever possible and don’t be afraid to take a loss. Losses in trading are normal, even for the best traders in the business. Learn from them.
Trading Is a Skill
The sooner you realize that trading is a skill you need time to develop, the sooner you’ll become good at trading. Accept the fact that you’ll make mistakes and cut yourself some slack. Learn from your experiences, both good and bad, and never stop seeking new knowledge.