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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.
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!
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.
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.
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.
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.
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.
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
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
Dave J
