Ignore Your Stops At Your Peril!

Ignoring your stops when stock trading is probably the easiest and most common stock trading mistake.

It’s so easy to talk yourself out of obeying your stops both on the upside and downside.

When a stock is rising it’s very tempting to raise your stops too close to the price and any pullback will see your stopped out.

Conversely, when a stop is falling, unless you stick to your stops you are really entering the realm of wishful thinking that a stock will rebound above the point you should have sold at.

Trust your technical analysis and stick rigidly to your stop loss planning.

You will lose at stock trading, that is the nature of the business. How you manage those losing trades will ultimately be the key to your overall success. Cut your losses quickly and let the winners ride as long as possible.

Todd B

Averaging Down

Averaging down when stock trading is usually a bad idea despite what many investment advisors may tell you.

It’s supposedly a good way to reduce your cost base but we feel it’s a way of throwing good money after bad. A good stock trader sells losers not buys into them!

However, averaging up or ‘pyramiding’ is a good practice to adopt. Buying more of a stock that is trending up can never be a bad idea. Just be aware not to over expose yourself to one particular stock in your portfolio.

Dave J

Runaway Trend Equals Runaway Train

You should always avoid trading a runaway trend. (See our article on stock trading trends.) If you have missed your planned entry price for a stock you are following, it is often better to wait rather than try to enter a position as the trend accelerates.

More than likely the stock will be pulled back and again test the trend breakout point allowing you to enter at a price closer to your original desired entry point.

If you are already holding a position in the stock just revise your exit point upwards and adjust your stops accordingly. Consider reducing your position to leave as much profit in the trade as possible.

Todd B

Trading Is A Business

Remember, stock trading is a business and another common stock trading mistake is to take it personally.

Don’t let a bad trade damage your self worth. OK, you made a mistake and these things happen. No-one is right all the time and a losing trade doesn’t mean you are a terrible trader any more than a winning trade makes you the best stock trader in the world.

Don’t fall in love with a stock either, no matter how much money it’s made for you. If there is a profit to take, take it. Sure you want to be right and feel great when you are but nothing stays the same forever and you must be ready to ditch any stock at the first sign of trouble.

As ever make you plan and stick to it.

Dave J

Trading Without A Strategy

Stock trading without a strategy is never a good idea. If you hear from a stock tip sheet or a TV program that a stock is hot, don’t be tempted to pile in without proper analysis.

Maybe you’ve stumbled across a hot new product or gimmick that you feel sure will take off along with a company’s share price.

By all means investigate but don’t buy on a wing and a prayer. Conduct proper fundamental analysis of the company’s share price. Look at the technical indicators and decide whether now is the time to buy or not.

Plan your trades as you would with any other stock pick with clear entry and exit prices. Formulate a trading plan and stick to it.

Todd B

Trading Against The Trend

Stock trading against the dominant trend can be easy to to do if you focus on too short a time frame.

Looking at a daily trading chart may indicate a trend in one direction but, unless you are a day trader, it would be wise to first look at a longer term weekly chart to better understand in what direction the dominant trend is heading.

Regardless of the indications on the chart you are looking at always confirm your analysis by looking at a chart with a longer time period.

And don’t forget to be aware of where we are in the business cycle and how that impacts the stock you are trading in.

Dave J

Trying to Hit The Top

Avoid stock trading mistakes by trying to time the exact top of a trading range for a stock.

Both tops and bottoms rarely arrive exactly when they are supposed to. Over-enthusiasm leads investors to keep buying a stock when there is no longer any fundamental reason to do so. Remember, the Dotcom boom of the late 1990s or the more recent boom of 2007.

As always it is far better to hold the positions you have and keep moving up your stops to lock in your gains. If something looks to good to be true it usually is and it’s at this time you need to keep a close eye on your fundamental analysis.

Todd B

Over the next few weeks we’re going to be looking at the most common stock trading mistakes, how you can spot them and hopefully how you can avoid them.

These mistakes are common to both experienced and novice stock trading investors so it’s important that you can recognise them.

Digging The Bottom

Trying to hit a stock exactly at the bottom is as hard as exiting a stock at the top. Stocks very rarely turn around in a ‘v-shaped’ bounce. Other investors looking for value may well dabble at a stock on a low but it will likely trade in a much lower range for some time.

It is therefore better to wait and track this new trading range only entering the market again when the stock breaks out of its range and heads decisively higher. Sure, you may not get in at the exact bottom but it’s better to be safe than sorry.

Dave J

Hi,

I’ve just added a couple of articles on Ezine on what to avoid when stock trading.

Follow the links below to view the articles.

Stock Trading Mistakes – Five to Avoid

Stock Trading Pitfalls

Dave J