7 Terrible Trading Mistakes That Rookie Investors Keep Making
Seven terrible trading mistakes that rookie investors keep making include the absence of stop-loss orders, investing in one or two trades, and buying low all the time. Others are hubris, being too excited, and following the crowd in addition to dumping shares quickly. These mistakes cost these novice traders significantly.
Knowing them might help you avoid them. Here is a comprehensive overview of these mistakes.
1. The Absence of Stop-Loss Orders
Trading effectively in the markets is impossible if you do not use the tools that are available to you. These tools include stop-loss orders. They will trigger the sale of a particular currency when it reaches a specific price. The idea behind them is to limit your losses as much as possible. However, using them correctly is only possible if you use a Forex demo account. It will help you learn about when to place these orders and their suitable threshold price.
2. Investing in One or Two Trades
The Forex market is a confusing one because things change in an instant. For example, unrest in the Middle East might have an impact on the demand and supply of US dollars. Moreover, the British pound might respond adversely to stalled negotiations with the EU on Brexit. Novices understand these complex scenarios affect the Forex market. Deciphering them is difficult, so they opt for one or two trades. Unfortunately, they might lose everything if these trades go wrong.
3. Buying Low all the Time
Novices believe that lowly priced trades are an excellent choice because selling them at a higher price in the future is possible. Therefore, buying them low increases their profit margins substantially. However, they fail to realize that market fundamentals are at play. That means low positions might spiral downwards. Therefore, buying low all the time might result in losses because these trades might sink. In contrast, high ones might climb even further than they are.
4. Hubris
Overconfidence is a serious issue when it comes to trading. It occurs when rookies believe that they know everything there is to know about the market. Consequently, they do not need any advice or tutorials from anyone. Instead, they can make a profit and avoid losses on their own. Some of them might hold on to losing trades for as long as possible believing that things will change. Unfortunately, hubris leads to huge losses because overconfident traders ignore things that could have helped them. These things include market signals, expert advice, and ongoing trends.
5. Becoming Too Excited
Trading is an exciting undertaking especially when you are making loads of cash. In this case, every upward trend motivates you to buy additional stock, currencies, cryptocurrencies, or commodities. Unfortunately, trades can crash at some point. That means losing vast amounts of cash is possible. Therefore, do not become too excited when you see that a particular trade is moving in the right direction. Remember that things change in an instant so diversify your portfolio as much as you can.
6. Following the Crowd
Investing in the markets is a risky affair because you might lose everything that you put into it. This lost cash could be your savings, salary, and investment. Therefore, searching for a safe way to invest it is critical. Unfortunately, novices resort to following the crowd. They believe that doing so is an excellent idea because experienced traders know something about the market that they do not know. Therefore, following them seems like a logical choice. Unfortunately, they do not realize that experienced traders make mistakes as well.
7. Dumping Shares Too Quickly
Did you see how fast stocks for Nike plummeted after the company aired the Colin Kaepernick Ad? More specifically, the company’s market capitalization value fell by nearly $4 billion a few days after the advertisement had become public. In such cases, novices would sell their shares as soon as they start dropping. They would not see that Nike was making a strategic marketing move. More specifically, the company anticipated the backlash. It knew that this backlash was reactionary and it would end, and it did. Nike shares started rising as soon as the backlash subsided.
Unsurprisingly, Nike regained its lost market share. It even rose to an all-time high. Skilled trader knew that this ad was a marketing scheme and they did not fall for the selling hysteria.
■ 7 Terrible Trading Mistakes That Rookie Investors Keep Making
TradingCenter Blog (2018)
