10 Common Mistakes Made by Traders
1. Marrying Your Stock and Finding Trades that Aren't There
If you haven't taken the necessary steps to manage risk, you'll pay a handsome price for your fidelity
2. Failing to Accept a Loss
A seasoned trader doesn't hesitate to take a loss. Learn to celebrate the small loss. Log your small losses into a trading diary and if you find you are making the same mistakes then work to eradicate that particular habit
3. Doubling Down on a Losing Position
This is the next logical step for the trader making Mistake #2. If nothing has changed in the short term dynamic of the stock then why double down?
4. Lack of Training and Preparation
Become a better manager of your own money. The best foundation is laid when you take the time to learn a piece at a time and spend plenty of time practiciing.
5. Trading with Scared Money
You have made a bad trade and now you're gun shy. Usually results in one of two actions: The trader will attempt to increase risk or gamble his way out of his mistakes turning the trader into a Wild West Gambler. The second common behavior is to play the trade too close to the vest with very tight stops in order to avoid any sort of loss.
6. Buying Cheap Options or Devling into Options with No Training
With options, you usually get what you pay for. There isn't any intrinsic value that's reflected in the premium. The value of the option lies in the speculative worth based on where the underlying stock could move. That is, the premium price is grounded on what might happen, not on any intrinsic value at the present time.
7.Overcomplicating the Analysis
Keep it simple. Study price and volume. Identify your support and resistance levels. Add confirming indicators as appropriate. Do not suffer from Paralysis by Analysis.
8. Unrealistic Expectations
The first and most realistic expectation is to outperform the broad market. If you can't outperform the broad market, stop trading!! If you want to get rich quickly, go somewhere else. If you want to get poor quickly, keep trading with the belief that you can get rich quickly. It is a marathon, not a sprint.
9. Using Software Crutches
Software should never be a substitute for learning. Learn the language of technical and fundamental analysis.
10. Trading Without a Plan
Learn from your successes and failures. Ask yourself; "Why am I trading?" Your trading plan should be built around the answer to this fundamental question. Be sure that your plan lives and breathes with you. Learn from the mistakes made by others before you.
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