Trading has exploded in popularity as the world goes digital and more people look for ways to make money and be their own boss. With so much information available, it is easy to get overwhelmed. Here are five common mistakes that new traders tend to make that can cause you to lose or miss out on profits. When starting in the world of trading, it is easy to make mistakes.
Here are 5 of the most common ones:
1) Not having a trading plan
Having a written trading plan is crucial if you want to be successful as a trader. What type of stocks will you trade? What time frame? How many trades do you make per day or week? These critical questions need to be answered before opening up an account with a brokerage company. If you do not have these answers, you will likely be making trading decisions on emotion, which is a recipe for disaster.
2) Trading too much or not enough
This mistake goes hand in hand with not having a trading plan. If you’re not following your plan, it’s very easy to trade too much or not enough. Trading can often lead to overtrading, and trading without a plan can lead to bad trades. Both of these outcomes can lead to significant losses.
3) Not using stop losses
One of the biggest mistakes that new traders make is not using stop losses. A stop loss is an order placed with your broker to sell a security when it reaches a specific price. This is a critical tool for keeping traders in the game, especially when they are wrong. Stop losses are also used to limit losses if a trade goes sour. If you don’t have a stop loss and your stock gaps up or down on huge volume, chances are you will be stopped out before you can blink. Another mistake new traders make is not having enough capital to cover their positions. If you have five small-cap stocks open at 50 cents per share ($250 total) and each one drops 15%, which doesn’t seem too bad, right? Wrong! You just lost $62.50 x 5 = $312.50; that’s half of what was in your account; ouch!
4) Not using protective stops
A protective stop is a stop-loss order set below the current price of a position to limit your risk. If your stock has been acting poorly and keeps dropping, it could be setting up for a major breakdown. Having a stop set below that price can protect you from losing too much capital should this happen.
5) Not taking profits
This mistake goes hand in hand with not using stops. Many traders hold onto losers too long and let winners run only to get shaken out near the top by selling at breakeven or small losses. Taking gains when they present themselves and selling half your position on big moves can keep your trading for more than one paycheck and lead to bigger wins down the line.
Trading is a skill that can be learned with the proper instruction and practice. These five mistakes are common for new traders but can easily be avoided with some planning and discipline. Stick to your plan, use stops, and take profits when they’re available, and you’ll be on your way to becoming a successful trader!
In conclusion
New traders often make mistakes that can stop them from being successful when starting trading. These five mistakes are common amongst newbies and should be avoided whenever possible so that you get off on the right foot. If you keep these things in mind while learning how to trade, you’ll have an advantage over other people who struggle from making simple errors. So, what are you waiting for? Start trading today and make some profits!