There are several popular mistakes traders make when trading stocks. Plenty of these can be avoided with knowledge and practice but you need to recognize the mistakes when they happen or avoid them altogether. Otherwise you'll lose money plus the only reason your trading would be to make money.
1. I always avoid trading the runaway trains, this can also be referred to as "do not chase". You see a stock on a nice trend then enter at your price, I normally wait for pullbacks and then enter at the price I want. Now and then I miss a trade and that's OK. You'll be able to also trade these pullbacks, if your already in and the stock goes crazy uncover a point to take profit or a minimum of raise your stops and re enter on any pullbacks.
2. Averaging down is typically a poor idea. Generally you'll end up in the red for twice as lots of shares. You'll be able to reduce your cost basis but you have already read the chart and your previous entry point wrong. I will do this for short scalps when I am early and generally the trade turns out ok, I don't double down on a dying stock, instead I double up on winning stocks. This give you profit that offsets a stocks loss, also if your already trading a stock well, then maintain trading it.
3. Set and maintain stops just before your trade.
No one likes to take a loss, they see the stop is going to be hit and cancel the sell. This is insane, you planned the trade a particular way, which includes the stop. Let it hit and re-evaluate whether or not you want to get this stock again.
The exact same rules apply for exits on profits, generally take your profit, exit when you hit your sell point. I just disobeyed this rule yesterday, I had the QQQQ at the low, profit of about 600, wanted to see if I could eek out some a lot more gains so I held. Next believe I know is I get distracted and recheck the stock to discover that I'm back to even. The QQQQ closed with me about 600 inside the red. This is the reason I'm writing about mistakes these days.
When a stock is rising it's rather tempting to raise your stops too close to the price and any pullback will see your stopped out.
4. Are you diversified?
Careful, you should be diversified, but don't over diversify. Its tough to monitor all markets and all trends including individual stocks throughout the day. I stick with specific stocks and also the QQQQ now and then a stock gets slow to trade and I obtain a new 1 to trade. You all have so a lot time and only 2 eyes. Realize your limitations. Trading specific sectors is really a concept many traders take pleasure in, it helps them gauge specific trends for the overall kind of stock they are trading i.e. oil, gold, tech etc. Nothing wrong with trading just one stock and learning it!
These 4 widespread trading mistakes are ones I confront on a weekly basis. I never confront #4 but lots of traders who buy penny stocks come to me for guidance seem to have trouble there. Hope this helps and make some funds today!
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