Common Trading Mistakes
| July 13
10 Common Trading Mistakes to Avoid
For Long-term Success in the Stock Market
trading often seems complicated and risky. This isn’t entirely true. It is a
serious commitment which needs focus, nurturing and constant updating of
knowledge. We usually come across several stories of how a person made a
fortune or was brought to the streets due to bad investment decisions. Whether you
are experienced or new to stock market trading, here’s a concise list of 10
trading mistakes to avoid for long term success.
Ignoring Your Homework: One cannot emphasize enough on the
importance of doing their homework, i.e. research. As a trader, the worst
mistake made is not researching enough. This is necessary as novice traders
have neither the knowledge nor experience of seasonal trends, timing of data
releases; and trading patterns that occur in the trade circle. The urgency to
start trading often blinds the need to do some research at the beginning and
that can cost a very high price.
Your Trading Plan or Not Planning At All: Starting your trade without adequate
knowledge of the stock market is just
like diving into quicksand headfirst, something which results in drowning.
Successful traders always have a well-defined
plan to trade, which they do not stray from. For example, how much capital they are willing to put at stake, the
losses they can afford to bear, their entry and exit points in the market, etc.
Having Too Much
Faith in Financial Media: None of the financial media based channels
can help you get closer to your goals. Beginners often assume that financial
media is the way to go in order to keep a track and learn more about their
investments, which is often contradictory. Nobody would reveal how to invest in a stock market on a TV channel
if they actually were profitable. Refer to daily or monthly newsletters, which
is way more productive and educational.
What or How You Leverage: Leverage is
the strategy of using borrowed money to increase return on an investment. Beginners are often
jazzed by how much leverage they possess
but don’t understand the phrase “leverage is a double-edged
sword” till they learn it the hard way. Leverage is known to increase profits
exponentially and diminish your capital to mere pennies through losses.
Stop Loss Orders: Stop loss orders are the instructions given to a broker for buying or
selling securities in order to cap the losses caused. Stop losses are important
for successful trading and not implementing these can be one of the biggest
mistakes a novice trader can make. To learn more about
stop loss, refer to our blog ‘Importance of Setting Stop Losses.
Recover Losses: Some of the biggest trading disasters can occur when
a trader keeps on adding stocks to break even his losses. This sort of
averaging down eventually forces him to give up his entire position when the
losses incurred makes it imprudent and impossible to hold on to that position. Traders also average up because the
security advancing is equally tempting but at the same time, it carries high risks.
Becoming a Part
of the Sheeple: Traders usually fall into the trap of following the herd when it comes to
investing. They end up paying a price too high for hot stocks or initiate short
positions for drowning stocks. They don’t usually understand when to exit a
trade. We at Indira Trade provide one-stop
stock market investment advice and help you to trade better as well as maximize
Obsessing Over Performance: The desire to make
better investments and doing better in the market grips almost everyone. Traders
often fall into the trap of high performing stocks without knowing that the
reason behind such high performance. Sometimes you see a rise in stock prices
due to the effect of the trade cycle.
Once this trade cycle comes to an end, the stocks will show a downside. Hence, it is advisable to
stick to your investment plan and improve your long
term trend following system rather than obsess over
performance. You can also refer to our blog “How to Overcome the Fear of Investing in the Stock Market” for
Letting Your Losses Accumulate: It is a general tendency of traders to hold on
to a losing position in the hope that the stock prices will move up in future. They
stick to their position rather than moving on to the next trade decision. This separates
unseasoned traders from the experienced. The latter would exercise risk
management strategies and put a cap on small losses.
10. Overconfidence Leads to One’s Downfall: A novice getting hit
by beginner’s luck may get bolder and take bigger risks and then fail royally.
What one needs to understand here is that trading is a very serious occupation
and needs constant attention. Always be conscious of your decisions by
remaining emotionally detached from success or failures.
Stock trading doesn’t need its
participants to be financial gurus. Regular research and help from expert blogs
or journals can turn anyone into a well-balanced player. By avoiding mistakes
one has better chances of thriving as well as being successful in the stock
market. Good luck and happy trading!