Before You Trade STOP Doing This
Never forget that health is wealth.
Every day it’s good to push and challenge yourself, whether it’s financially, physically or spiritually or intellectually as we are ALL capable of achieving SO MUCH more than we realize.
But too few people work hard enough or have enough patience and dedication to see it through to reap the rewards.
I’m VERY proud to be a teacher and mentor not just in stock trading but also for passing down life lessons as I’ve been so blessed to live/travel extremely well.
I’ve had so many crazy experiences and also met and talked with so many amazing people too. It’s my honor to teach from experience as hopefully I can help you unlock your true potential and live a fuller life as a result!
Pulling from that experience, as I pretty much had to teach myself along the way, I came up with these 13 things you need to avoid if you’re a trader.
We covered the first three yesterday — were you guilty of any? Let’s jump back in today with number four on my list…
#4 Buying Stocks With No Volume
As a stock trader, you’re given information about the stock price and the volume.
But most beginner stock traders only look at the price and completely ignore volume. This is a serious mistake.
Market makers can move the stock in one direction on very little volume. You may see a stock up 10%, but if you look at the volume traded you see it’s only 5,000 shares. Avoid these traps by remembering that volume validates price.
If a stock is moving strongly in one direction or the other, it needs to be accompanied by strong volume.
Think about it this way: It takes a lot of effort to move a stock. That effort is the volume. Stocks can’t move on zero volume, and they shouldn’t be moving strongly on low volume. If stocks are moving on low volume, it’s hype. Avoid hype.
Always look at the price action and confirm it with volume. And never forget that volume validates price.
#5 Not Keeping a Trading Journal
When you think of trading, “journaling” isn’t something that usually comes to mind.
You note when you enter a trade and exit with a profit, then move on to the next trade. Right?
Nope. You have to keep a journal of ALL your trades — the good, the bad, and the ugly.
Take screenshots of the chart and the setup that you got you into each and every trade. Write down your thoughts on why you liked the chart and entered the trade.
Then write down when you exited the trade. Study your entries, exits, and timing. Learn from your success and failures. It’s one of the best ways to improve as a trader.
#6 Trading Too Large Position Sizes
When you’re trading, always keep position size in mind. Don’t risk too much of your total trading account on any one trade!
When you’re just starting out you may have only a small stake to begin with. Even so, never risk your entire account on one trade unless you’re prepared to totally start over again.
You may love a chart and think the price will increase, but what you think doesn’t matter to the market. Use good judgment and proper risk management practices. Don’t pour all your money into one trade.
Test your trading strategies and rules with small position sizes. Make 50–100 trades to gauge your win rate. Once you know that, you can gradually increase your position size and refine your strategy along the way.
#7 Trusting Stock Promoters
Look, I hate to be the one to break this to you, but there’s no Santa Claus. No matter what your parents told you. And no Easter Bunny either.
I’d rather you believe in Santa Claus than trust stock promoters.
Their job is to pump up stocks to drain all the money out of your account. Don’t join their email lists. Stay away.
After the promoter has convinced every sucker to buy the stock, they will sell their shares. Their profits come out of your trading account! Falling for their bullshit is one of the stupidest mistakes traders make.
#8 Trading Difficult and Unclear Patterns
Look at a typical stock chart. It’s not really mysterious. It’s very exact. It shows precisely the stock’s price history. Those points trace out clear, straight lines.
It’s like a picture deep inside the mind of the market, showing exactly what the market has thought of this stock.
The patterns I teach work well, but there’s a temptation to see patterns in the charts that aren’t really there. It’s not really a cup and handle, but it looks sort of like a cup and handle, so you run with it.
And then you wonder why you keep losing.
We’re all human. We’ve all thought we were in love with someone we thought was our ideal, but it turned out that person wasn’t “the one,” and that broke our heart.
Lucky for us, stock charts aren’t as hard to figure out as human beings. Stick with the patterns and indicators that are clear and unmistakable.
#9 Ignoring Indicators
The technical indicators are telling you a story about the stock, and you can’t afford not to read what it’s saying. Buy breakouts and sell breakdowns.
When the indicators tell you a trend is close to its top, take your profits. Get out of the trade.
When the indicators tell you a stock is not ready to trade yet, stay away.
Bottom line: You need to stick to your trading plan.
#10 Letting Emotions Take Control of You
The financial markets are a perpetual battle between the bulls and the bears.
When a stock’s bulls outnumber the bears, the price goes up. When the bears are stronger than the bulls, the price goes down.
And the same battle plays out in your mind, your heart, and your gut. It’s the constant push-pull of fear and greed.
That’s what leads you to make psychological trading mistakes: You let your emotions overrule your mind.
You can’t turn yourself into a cyborg trader, and that’s good. You have to harness those emotions so they serve you.
Greed is a good thing when it motivates you to work hard to learn to trade because you want to support your family, achieve financial independence, and live the laptop lifestyle.
Fear is a good thing when it prevents you from putting on stupid sure-loser trades, when it keeps you from overtrading your account, and when it tells you to close out a losing trade before you lose more money.
Stay in control. Use your head so you always know when it’s useful to feel greedy and when it’s dangerous to ignore fear.
How are you doing so far? Are there things you think you might be needing to change after reading this? If so, good! Then you’ve learned something.
But, if you’ve been cruising along so far… don’t get your hopes up just yet. We still have three more to uncover in tomorrow’s issue.
Let’s see if any of those apply to you.
— Tim Sykes
Editor, Penny Stock Millionaires