13 Trading Mistakes to Avoid at All Costs
We’re all human. We’re driven by our emotions, especially fear and greed.
That’s why you can memorize chart patterns until you’re blue in the face, then watch them blow up the next day. Those are tactics.
You’ve got to get the strategies right. If you want any chance of success, you need to know all the rules first.
Not only do you need to learn what to do, but you also MUST know what to steer clear of. That’s what this article is about. I’m sharing 13 mistakes that traders need to avoid like the plague.
Learn them and stay away from them!
Let’s get started…
The 13 Trading Mistakes Traders Need to Avoid
Sometimes traders get so caught up in their trading that they forget everything else. Don’t be one of them! These are common mistakes that stock traders don’t need to make.
Trading demands focus, discipline, and knowledge. You must internalize these strategies.
#1 Buying Stocks Without a Plan
A lot of new traders enter a trade and hope the stock price increases as soon as they enter.
Anyone who has traded knows this rarely happens.
But this fact doesn’t stop beginners. If the trade starts moving against them, they’ll let their emotions take over as they find reasons to convince themselves the stock price will increase.
Next thing they know they’re down 20% from where they entered.
Reluctant to sell and take the loss, they keep holding. And the price keeps dropping and now they’re bag holding.
In other cases, a new trader may enter a stock and the price increases. They don’t sell and take profits because greed takes over. Soon enough, the trade moves against them and they’ve turned a winning trade into a losing one.
These trading mistakes are the result of not having a plan before moving into a trade.
When you enter a trade, you should be able to answer these questions:
- What am I seeing on the chart that is making me go long or short?
- What are my price targets?
- How much of my money am I willing to risk?
At what point does this trade move against me and make it so that the trade cannot work in my favor?
If you can answer those questions, then you can set your plan with entry and exit points.
If you can’t answer those questions, don’t make the trade!
#2 Shorting Hype Stocks too Early and Getting Demolished on Your Shorts
What goes up must come down. That’s particularly true of stocks being pumped and dumped by scammy promoters.
I’ve enjoyed riding on their coattails. When I spot a stock in the very early stages of a pump, I’m glad to buy and ride along as it goes up.
And when it’s going to go down, sometimes I profit by selling short.
But you have to watch your timing. Don’t sell short too soon! Remember, hype can keep pushing a stock’s price up much longer than you can avoid bankruptcy.
You need to find where the “top” is on a stock. This starts with finding resistance levels and finding when buyers are leaving and sellers are starting to take over the stock.
#3 Not Cutting Losses Quickly
This is the biggie. This mistake probably counts for most of the money traders lose.
That’s because it’s such a common, typical human failing. We don’t want to admit we’re wrong. And in many of life’s situations, it’s even a good thing. Lots of people get by just fine refusing to admit their mistakes.
As a trader, you can’t afford that. When you make a mistake, get out … like, five minutes ago.
You will never be 100% correct on your trades. I’m not. After trading and studying the markets for twenty years I’m right about 74% of the time. That’s good, but it means I’m wrong 26% of the time.**
I haven’t blown up my account yet because I admit I’m wrong — and I get out, fast. A trade isn’t a fight for something you believe in!
You need to predetermine your risk when you enter a trade. (Remember the plan I wrote about in #1?)
What’s the risk to reward ratio?
How much are willing to risk?
Once you know what you’re willing to risk, enter the trade and set your stop loss.
I’ll be the first to admit that it doesn’t feel natural to enter a trade that you think will be profitable and immediately set a stop loss, but it can protect you from incurring huge losses to your account.
We’ll get more into stop losses later on, but I’m going to leave you here for now.
Are you guilty of any in the above? Better yet, are you guilty of the ones we’ll talk about in the tomorrow’s issue…?
There’s only one way to find out. Talk to you tomorrow.
— Tim Sykes
Editor, Penny Stock Millionaires