To date, my biggest stock trading mistake was to put all eggs in one basket, meaning I invested in a single company again and again, Washington Mutual to be particular, while the price was falling down. When the WaMu was declared bankrupt I had a major loss. I attribute the loss to speculation and over confidence – too big to fail confidence. I had a dream of being rich with WaMu shares, one day!
Although practically everyone who decides to start trading goes in with dreams of success, there are plenty of common mistakes that traders of all levels make. Discover these four deadly stock trading mistakes to make sure you know what not to do when trading to increase your chances of success.
1. Not Having a Plan
One of the most common mistakes in trading is not having a plan, and unfortunately, it can be a pretty deadly mistake, as well. When you’re dealing with the stock market, having a plan is almost always necessary to be successful and make a profit. Luckily, though, creating a plan for trading isn’t very difficult.
To create a trading plan, you should compose a document that details your entire trading strategy. In this document, you will want to include your mission statement, pre-market preparation, trade entry rules, trade exit rules, money management rules and post market actions.
Once you have your plan created, make sure you are committed to it, as this will be the only way to figure out if any problems that arise have to do with your plan and not with your execution of it.
For me, the plan is focus on dividend growth. I buy shares (but mostly index funds I buy) of big companies with good dividend paying history. Also, I buy stocks only for long-term.
(Related – 10 best practices for dividend investing)
2. Changing Your Plan
Having a trading plan is, of course, a huge key step into being successful at trading. However, changing your plan can also be incredibly destructive a lot of times. It is important to remember that there is no plan that is guaranteed to win, no matter how much you might wish there was.
You may find that you had a loss early on in your plan and feel like it isn’t working, but in reality, it is almost guaranteed you will encounter a loss at some point.
It is also common for a run of losses to happen at some point, as well. If a loss happens, you must understand this is something that is to be expected and not a sign that you should change your plan right away. It will take time to discover how well your plan is or isn’t working.
(Related – How to Control Stock Trading Impulses)
3. Not Putting in Enough Effort
A very deadly mistake in stock trading is simply not putting in enough effort. When people begin to trade stocks, many are looking – or at the very least hoping – that they strike it big without much work.
However, it is undeniable that those that are the most successful at trading are ones that put in the right amount of effort. It is important to realize it takes time to learn the ins and outs of the stock market and commitment to becoming a skilled trader.
So, whether you are new to trading or have been at it for a little while, keep in mind that the amount of effort you put into it will likely determine the amount of success you can possibly achieve.
4. Poor Money Management Skills
Knowing how to manage money is incredibly important if you wish to be successful at trading. It is incredibly important to know the maximum losses you can handle in a single day or in a single trade in order to turn a profit.
To make sure you are giving yourself the best chances at success with stocks, you want to make sure you know how to properly manage your money for trading, include this in your plan and follow it precisely, or else your trading career could be doomed.
(Related – How Can I Time Stock Market Correctly?)
Readers, if you’re a trader or used to be a trader, what other advice you may like to give. Also feel free to share your mistakes and let others take lessons from them.