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Common Mistakes to Avoid while Trading
- Failure to cut losses: Pride, ego, or stubbornness prevents the trader from selling.
- Not knowing “how much” to trade on each position: Overtrading positions can kill your account and take you out for good (risk of ruin). (Learn to position size)
- Average down in price: Placing good money after bad is a loser’s game.
- Listening to rumors: Forget the talking heads, rumors and tips as they are nothing but garbage and a sure way to substantial losses.
- Lack of patience: It takes years to master trading as an advanced skill; even then, you are never done learning or adapting.
- Not knowing when to sell: Determine your price objectives and risk-to-reward ratios prior to entering the trade; never allow emotions to make this decision.
- Buying 52-week lows: Don’t be afraid to buy stocks making new highs. The garbage sits at the bottom along with weakness and downward momentum. Buy strength and the momentum moving higher.
- Pure Fundamentalist: Technical analysis is a must! Use candlestick charts that show the price, volume and major moving averages – this is all you need, don’t complicate the process.
- Making trading decisions based on taxes: Never buy or sell based on taxes alone.
- Buying based on dividends: Don’t buy based solely on dividends; most growth stocks will never give out dividends.
- Buying familiar names: Yesterday’s leaders are not likely to be tomorrow’s stars. Look for solid new companies with great earnings, sales and a product in demand. Don’t buy a stock based on a popular household name.
- Lack of action: Be able to move on a time. Time is money, don’t procrastinate or hope for something that may never happen.
- Lack of Consistency: Develop a method suited to your personality; stick to it and don’t trade blindly.
- Always trade with Stoploss.
