The One Time You Shouldn’t Trust Your Gut
A lot of people ask me when should they try get into the stock market and my answer is simple: START AS SOON AS POSSIBLE!
You won’t make that much money right away as you learn how finance works and where all the best opportunities to profit are. So get started learning and being ready to study hard right now as the lessons/basics you learn will change your life over time!
But! Before you get started, make sure you’re not picking up any of these final three trader mistakes! (And if you’re already trading, I highly recommend you put a stop to these ASAP).
#11 Entering a Trade Based on Your Gut
This is similar to Mistake #10. When a gut feeling is your only reason for entering a trade, that’s one of the trading mistakes too many people make while trading stocks.
It’s greed and hope controlling you instead of facts — instead of the objective reality of the chart and the market. It’s a form of fantasy. Fantasy is for books and movies, not trading penny stocks.
First, learn the main patterns and how to recognize them in a stock chart. Learn to follow trend lines. Buy breakouts and sell breakdowns. Learn from your mistakes by keeping a trading journal.
Establish the discipline of following your trading plan. When you have a good set-up, force yourself to look at it closely and analyze it before you pull the trigger.
Is it real or is it hope? Is it real or is it hype?
Allow yourself to feel the fear of losing money because you fell for a fantasy.
But once you’re sure it meets the objective criteria for a good trade, then go for it.
#12 Neglecting Stop Orders
A solid way to prevent excessive day trading losses and potentially lock in some profit when you have a winner is to make sure you set stops on every single trade.
If you stay glued to your computer you might think you don’t need them. But sooner or later you’ll get distracted by another trade, the news, lunch, or a sudden need to rush to the bathroom. Hey, too much coffee or a stomach virus can happen to anybody.
When a stock loses support and everybody wants to get out in a rush, it can fall a lot faster than you can get your sell order in. That can wipe all your profits and much more. Set your stop-loss order as soon as your trade is filled. And like I said before, you need to predetermine this risk before you even enter the trade.
#13 Lack of Preparation
Trading stocks is not school or a lousy job.
If you’re attracted to trading, you probably didn’t like teachers and bosses telling you what to do.
You’re a contrary personality. I get that. It’s good, if you can harness that aspect of your personality. I’m there myself.
But if you want to succeed at trading, you must become the strictest, hardest-ass boss you’ll ever have in your life: you.
And you also need to be your boss’s hardest-working student and employee.
It takes discipline. Some people can’t handle it. They’d rather goof off and watch TV or drink too much or buy too much shit online or whatever. They’re not ready to sacrifice time and effort now to potentially grow their money.
But a major part of trading is preparing to trade.
Create your watchlist.
Go through your scans of the largest percentage gainers. Look at what patterns have and have not been working. Build a watchlist and diligently tend to it.
You know the drill, so do it. The more trading experience you gain, the more you’ll develop this automatic habit.
Trading isn’t easy, and that’s good. If it were easy, it wouldn’t be fun — or potentially really freaking profitable.
I’ll say it again: we’re human. And we all come with brains and nervous systems that didn’t evolve to make us perfect traders.
We all have cognitive biases — we don’t see reality straight on. And those that think they do are kidding themselves in a huge way. We’re designed to gather and hunt food, not stare at numbers and graphs all day, thinking about trading accounts and the future.
Do your research, practice, and learn.
Keep your emotions under control.
Some greed is good or you wouldn’t want to trade stocks. Some fear is good or you’d lose all your money. Just don’t let your emotions overturn your trading knowledge.
Yeah, that’s easy to say, but it’s hard to do when the markets are open and busy. But once you practice and get the hang of it, you’ll be really glad you did.
Now that you’ve learned these mistakes, think about them and figure out how many of them you’re making. Be honest with yourself; your financial future is at stake here. (And don’t just keep them in your head; write them down in your trading journal!)
Not losing money by making these mistakes is way over half the battle. Making a potential profit by finding a few winners can be easy compared to eliminating these problems.
Start your discipline regime now.
— Tim Sykes
Editor, Penny Stock Millionaires