The Highway to Trading Hell is Paved with These Mistakes
Dear Penny Stock Millionaire,
Yesterday, I told you five sure fire ways to destroy your account.
Hopefully you don’t follow those steps. If you want to succeed as a stock trader long term, you can’t make these common mistakes that traders fall into.
Today, I’ll go over five more easily avoidable mistakes and downfalls that you’ll need to learn to avoid if you want to be a great trader.
To make your note taking easier (you did take notes like I told you, right?) I’ll start today with number six, if missed the first five, click the link at the beginning of the post. I’ll still be here when you get back.
#6 Lack of Self-Discipline
People with no self-control and poor discipline will struggle in the markets. If you can’t follow the rules and control your actions and emotions, there’s little room for improvement.
I teach my trading rules that have brought me success, but you have to have the self-discipline to follow them.
Remember to Cut Losses Quickly
My number-one trading rule is to cut losses quickly. When you’re in a trade and it goes against you, you need to get out!
If you’re down on your position and you don’t cut your loss, you risk the money in the trade… but you also risk your probability of staying in the game. If you take losses that are too large, you can blow up your account… fast.
Learn to take small losses and review every trade. Learn to manage your risk. Never hold and hope.
So you see a stock spiking and you’ve gotta get in at any cost, right?
This is a classic newbie mistake. Don’t chase stocks. You risk buying at the top, and having to chase it down to get out.
Poor entries can affect your entire trading mentality. It can affect how comfortable you are in a trade. If you miss your entry, it’s OK to miss the whole trade, better to miss one trade and not lose money, than to get in late and end up down.
Learn to build and stick to your trading plans. It can make it so much easier to keep the big picture in mind. You can better learn to stick to your entry and exits. You did the research, so you have better expectations of what might happen.
But if you chase a stock and get in at any cost, then what? What’s your risk? What’s your goal?
Learn to be meticulous when you plan your trades and remember that you need discipline to stick to your plan.
#7: Forcing Trades
When you see a pattern setting up, you’re probably looking forward to the trade. You’re anticipating what the stock might do… you want to jump in and nail it.
But careful! Don’t force the trade. Patience is key when you plan your entries. You need to wait for the best possible opportunity to buy.
Be sure to focus on your patterns and fine-tune your timing. Trade to your patience level and do what feels comfortable to you. Don’t rush into a trade you don’t have a plan for and don’t try to buy early, thinking you know what the stock will do.
When you don’t wait for the best plays, it drains your mental capital and can impact your ability to execute the next time you try to trade.
Hey, even I still do it sometimes. You need to be constantly on guard against.
#8: Trying to Guess or Anticipate Earnings
Anticipating or trying to guess what a stock’s reaction to earnings will be, is exactly that — a guessing game. It’s not a strategy. I always wait for price action to show me how the market’s reacting.
Check out my trade from November 10:
Roughly $3,000 in profits for me on MITK all because I employed my favorite pattern of dip buying earnings winners, as long as they hold technical support… I suggest you learn this pattern ASAP!
Some traders will say, “But Tim, this company had really good revenue this year. I’m just going to buy pre-market while the price is still low.”
But then when the market opens they watch it tank because they didn’t know as much as they thought they did.
I want the chart pattern to show me whether it’s an earnings winner or loser. I don’t guess earnings ahead of time — I wait for the price action to indicate whether there is potential in the stock.
#9 Confusing Investing with Trading
When traders confuse investing with trading, they buy a penny stock to hold it long term. They hold and hope — thinking the price will continue to go up.
Maybe they base that on the company’s technology or products. Maybe they just like the company.
Bottom line: You can’t evaluate a penny stock the same way you would a large-cap company. Here’s the deal with investing vs. trading…
Investors buy stocks to hold them long term. They believe in a company’s fundamentals, such as earnings, products and income, and the company’s management.
This can involve holding on to the stock for weeks, months, or years.
That’s the Warren Buffet approach.
Penny stocks aren’t like that. Most of these companies are junk. A lot of them only have one or two products. Most of them will eventually go bankrupt.
I do NOT invest in penny stocks! I trade this niche with specific setups. I’m not investing to hold the stock long term. Remember, most of these companies will fail.
Day trading is when you execute a trade — a buy and a sell — in one day. Some traders execute multiple day trades per day.
I day trade penny stocks. I’m usually in and out of stocks quickly, sometimes in minutes. If the right setup presents itself, I may hold overnight, anticipating a gap-up the next morning.
I trade based on patterns and news. I plan my trades. And I only trade the best setups.
An important thing to note: you need to understand the pattern day-trader rule (PDT). The PDT set restrictions on the number of day trades you can execute per week if you trade with a small account.
#10: Going It Alone
A lot of new traders struggle for a long time on their own trying to figure out the stock market.
There’s no reason to struggle and lose tons of money. But you’ve gotta invest in your education.
There are so many online resources. Use my YouTube channel. Read my emails every day. Get a mentor.
Having a mentor can help you speed up your learning curve. Learn from experienced and transparent traders. I never had a mentor, and that’s why I teach now. I want to be the mentor I never had to my students.
There are so many opportunities in the stock market. Learn as much as you can from successful traders — their mistakes and wins. Work to find the strategies and setups that make sense to you. You don’t have to figure it all out on your own.
The Bottom Line
One final important note: All traders make mistakes. Nobody’s perfect. You won’t be right 100% of the time.
You need to accept that being wrong is part of trading. Even after 20+ years in the markets, I still mess up trades.
So yeah, you’ll lose sometimes. And that’s OK, especially if you follow rule #1 and cut losses quickly.
Be disciplined and continually work to improve. That’s one way to help cut down on your mistakes. And when you do make mistakes, make sure they’re small. Never take big risks that can knock you out of the game for good.
Editor, Penny Stock Millionaires