08 Nov The Most Important Pitfalls That Traders Should Avoid
One of the first things that you need to be aware of as a trader, trading in shares or stock, is that you will make mistakes. It really is inevitable, especially as a novice. The good news is that there are common errors that you can prevent straight out of the gate so that you can avoid losing money unnecessarily. With this information in hand, you will be able to have a period of relative calm where you can amass as much experience as possible. Here are the pitfalls that you should be aware of:
Beginning without Any Introduction
Would you get behind the wheel of a car and drive on the roads if you hadn’t had any prior instructions or lessons? Well, the same concept applies to the stock market. While you certainly have the option of jumping in, this is not advisable. This is because you will be attempting to find a foothold in a world where you don’t understand the language, how things work, or what your opportunities or obstacles are. All of this together is a sure sign of impending failure. The first thing that you will need to do before going any further is to learn share trading. This will not only give you your best chance at success but will also prevent you from making any silly mistakes.
Not Having a Plan
Despite what the movies may depict, successful traders always have a plan. This means that they meticulously thought out every aspect of the trades they are making. For instance, they know precisely the moment that they should enter and exit a trade. They are also aware of just how much they should invest in that particular trade. Most importantly, perhaps, is that a plan will include how much you can stand to lose at any given moment. Your strategy will be based on research, reliable information, and various trading tools. As such, you can really on the approach that you have put together. Just as important as having a plan is making sure that you follow it, even when you feel like a detour could make you money.
Not Using Stop Loss Orders
It is important to approach each trade as though there is a chance of losing money, regardless of how good your position looks. A stop loss can help you to limit this loss so that even if you don’t end up making a profit, you can still at least break even. Now, many traders are afraid to use stop loss as they fear they will lose out on too much of a profit. While there is a chance of this happening, the risk of losing a lot more in a trade is greater. So, even if you are unsure about this method, stop losses can be an invaluable tool at your disposal.
Following Other Traders Blindly
While the trend is your friend, following other traders without understanding the factors at play is quite risky. In the beginning, stock that is doing well is a good sign. However, if it starts to look as it is going to be hitting record highs soon, then there is something else at work. There is a good chance that the prices are going to dip in the other direction fairly soon. This is why you should know to get out of a trade when too many others jump in on the action.
These are the main things to avoid as a trader to prevent you from losing money.