Trading can be challenging, but most of all it is risky. Successful investors and traders all agree that making mistakes is part of learning. However, you do not have to repeat the mistakes done by others. We can all learn from mistakes.
Here are four mistakes that you should avoid in the stock market for a successful career in trading.
- Using margin
As a new investor, you should never be lured by what is presented as free money. A margin is money extended to you by your broker as credit. Without experience in trading, buying on margin could land you in unnecessary debt. Stick to buying stock using your capital which places you within the risk profile that your capital allows you. This way, even if your positions do not yield, you get to live to trade another day. When your investments all flop and you bought them using margin, you land into debt in addition to losing your capital.
- Chasing stocks
Wise investment entails purchasing a stock at the right share prices and selling when the price hits your desirable point or when the loss cannot be sustainable. Chasing the sock entails trying to fill an order by bidding successively as the rice moves. This is reactionary bidding, and you might lose your focus pursuing an order without being strategic about the risks and leverage that you hold. Avoid this at all costs. Purchase at the right time and pull out at the strategic time. Don’t chase.
- Don’t hope
Trading is all about speculation, but don’t be deceived that it is a game of hoping and praying for the stocks to turn in your favor. So don’t hope. Instead, strategize based on philosophical and logical analysis of the market conditions. This is the only way that you will remain objective in selecting your positions and making the calls.
Buying stock hoping to sell them at a profit requires more than hope.
It requires discipline in sticking to your strategy and conducting performance analysis to determine how each trade performed, the lessons learned and your profit and loss vis-à-vis our portfolio.
This can be determined by carrying out a post-trade analysis.
- Underestimating yourself
Most investors, especially beginners, have been scared to the point that they think less of themselves when it comes to excelling in the market. Success has somehow been reserved for the sophisticated investors with years of experience. But don’t be deceived. Beginners can also be successful; it does not have to come after years of trading. However, it also depends on how you define success. For a beginner, success should entail mastering a strategy that flips your $100 to $150 after two days. It is all about getting returns on your capital. And as you get used to trading, your capital also increases in line with your risk tolerance. That is the definition of success. So do not underestimate your abilities and potential to be a successful investor.