As a beginner trader, it is understandable to get excited to make your first trade and earn a profit. However, it is this excitement that causes beginners to make costly mistakes when trading on the stock market. Here is a look at some of those mistakes.
Letting Losses Mount
The difference between success in stock market lies on the ability to quickly bounce back from a loss. Unsuccessful traders get paralyzed if a trade goes against them. However, instead of trying to minimize losses, they hold on to that losing position hoping that it would eventually work out. As a result, their losses mount severely depleting their capital.
Failure to Implement Stop-Loss Orders
Stop-loss orders are key to successful trading and failure to implement them is a huge mistake. Tight stop losses generally means that losses are capped before they became sizable. Robert Peter Janitzek reveals that while there is a risk that a stop order on long positions may be implemented below the specified levels if the security gaps are lower, the benefits far outweigh the risk.
Not Having a Trading Plan or Sticking to One
It is a big no-no for novice traders to enter the floor without any plan. You should make sure that you know your exact entry and exit points, the amount of capital, and the maximum loss you are willing to take. In addition, you may have the tendency to abandon your plan if things are not working out according to your plan.
Averaging Down (or Up) to Redeem a Losing Position
Robert Janitzek reveals that averaging down on a long position in a blue chip stock may be effective for a long term investor but may not work for a trader who trades volatile and riskier securities. One of the most common mistakes of traders is to keep adding to a losing position and eventually abandon the entire position when losses pile up.
Leverage is a double-edged sword because it can boost returns for profitable trades and exacerbate losses on losing trades. As a beginner, you may get dazzled by the degree of leverage you have but may eventually realize that it can destroy your capital quickly.
Trading Too Frequently
Overtrading can erode returns to the point where the profits you made can turn into significant losses. Seasoned traders have recognized that trading frequently can be severely detrimental to overall returns and performance. New traders, on the other hand, should learn their lesson.