I’ve been dabbling in stock trading for seven years now. Most people around me think that it is difficult and too technical to understand. Yes, I agree, but is it impossible to learn? No. Anyone can hone their stock trading skills in a few months, provided they do not repeat some common mistakes. But let me tell you; these few months can quickly turn into a few years if you don’t learn from your mistakes.
My article focuses on some of the five most common stock trading mistakes I’ve seen people make again and again. So, if you want to know what you shouldn’t be doing in stock trading, read on:
- Inadequate Gadgets
- Lack of Strategy
- Lack of Trust in Your Analysis
- Fear of Missing Out (FOMO):
- Over-Trading and Revenge-Trading
- Key Takeaways
- Inadequate Gadgets
Some traders use their smartphones to analyze the market, that too on a spotty internet. Accessing analysis tools and indicators like the Relative Strength Index (RSI), volume, draw lines, and more is difficult on a smartphone. However, if you can analyze the market on a smartphone; perfect, but you should never trade on a slow internet.
Trading markets, for instance, forex or stocks are highly volatile. Profitable opportunities come and go by within minutes. If your internet is not fast enough, then you may miss out on entering the market at the right time.
So, if you’re relying on an unstable internet, you better switch to a quality connection. For instance, Xfinity internet service has been working out for me so far. Plus, Xfinity provides more than 20 million hotspot zones nationwide along with 24/Xfinity customer support.
- Lack of Strategy
Most people who start their stock trading career usually have a strategy. However, the issue is that people do not test their strategy enough times before diving into the stock market. A safe way to do so is to implement it on a demo account. This way, even if your strategy setup fails, you will not lose real money.
One more thing; most traders do not realize that their strategy may not work in every type of stock trading. For instance, in long-term stock trading, fundamental analysis holds more importance. One great way to do fundamental analysis is by reading a company’s financial statements. This way, you may predict if a company’s stocks will go up or down in the future.
On the other hand, in short-term trading like scalping, relying on technical analysis; reading charts, volume, and analyzing other indicators, is a better option. You can get an outlook on the stock’s short-term position and trade accordingly.
- Lack of Trust in Your Analysis
Beginners doubt their strategy and analysis when they lose money. Let me tell you one thing; It’s my 7th year in stock trading and I still lose money sometimes. However, I have stopped doubting my analysis because I have understood that no strategy or analysis can be 100% right.
A stock trader should always have trust in their analysis. It’s because if they’re not confident about their trades, then they may not use a stop order; a point in the market where your trade automatically closes to minimize the loss.
Here, I’d suggest you stick to your analysis. Even if you fail multiple times, figure out the factors you missed before taking an entry into the market. One more thing: always use a stop order to protect your equity and do not move it once it is set.
Changing the stop order again and again increases the chances of losing more money. It may be effective sometimes, but on the other hand, the risk of losing all your equity is too great. In short, trust your analysis, learn from your mistakes, and always use a stop order.
- Fear of Missing Out (FOMO)
FOMO is the biggest enemy of traders. FOMO is an opportunity that you want to grab, but for some reason, don’t. Eventually, the anxiety of missing out on an opportunity to make huge profits kicks in. And you enter the market without a firm analysis.
I have seen seasoned traders falling into the FOMO trap. I won’t say it’s easy to sideline the market rumors that cause you FOMO, but trading psychology can help you overcome it.
Trading psychology tells us not to believe every news out there in the market and teaches us to put a halt on our emotions. While I believe that trading psychology is developed over time, the following suggestions should help:
- Be patient until you do not find a clear market structure.
- Set stop orders as soon as you enter a trade.
- Even if you have missed out on an opportunity, the market may retrace or give you another opportunity to trade. But do not jump into the market with poor analysis.
- Over-Trading and Revenge-Trading
Along with not using stop-orders, I consider over-trading and revenge-trading the second biggest reasons beginners do not survive in the stock market. That being said, they’re defined as:
- Taking multiple trades in a day: Most beginners cannot control themselves after making a profit. They enter the market repeatedly and at some point, they make a mistake and lose money.
- Covering losses: It’s called revenge trading. While covering for their losses, their focus shifts to making up for the losses rather than taking an exit from a profitable position.
Note that a trader’s best quality is to keep the emotions in control. Controlling the nerves, especially when every trade is hitting its mark is not everyone’s cup of tea. Here, I would recommend taking a break after every trade. Then, evaluate the market’s position with a fresh mind before entering the market again.
Key Takeaways
- Don’t fret and lose hope in your analysis when it fails. Understand that no strategy or analysis is 100% accurate and there is always room for loss.
- Test your strategy in a demo account before implementing it in the real market. This way, you will be able to evaluate its accuracy.
- You can prevent losing a significant amount of money by putting a stop-order on every trade.
- Overtrading and revenge-trading bear no good results.
- The best time to enter the market is when you have a strategy backed by strong analysis.
- FOMO may tempt you to enter the market but developing a trading psychology will help you make informed decisions.