7 Common Mistakes You Should Avoid While Trading

Jul 22, 2020 12:45 PM ET

There is always a learning curve to everything and there is one to stock trading as well. No one can become a successful stock trader overnight. Of course, there are many trading tips and strategies you can find if you Follow AvaTrade on Twitter. Nevertheless, even if you can’t book profits every day, there are ways to minimize your losses, if you can avoid these common mistakes committed by most rookie traders:

Not limiting losses

There is probably no one who is always right when it comes to stock trading. In fact, most of the times things don’t go as per your expectations.  It is therefore always important that you include a stop loss with every transaction that you make. This way you can move on without worrying too much about your losses, even if the stock prices fall drastically.

Averaging Down

Most traders often end up buying additional shares if there is a price fall after their initial purchase. This might seem like a great strategy; but it will work only if the stock price bounces back. If it continues to fall, you may end up with a low average cost. Try this only if you have a lot of time on hand. You will need to hold on to them until the market reverses. However, if it fails, you might end up losing everything.

Buying in to Emotion

Many a times it might get tempting to buy stocks whose prices are quickly rising. Nevertheless, this price increase is mainly because of a lot of investors buying these stocks. The key here is to wait until these stocks pull back to their trend line. Never buy a stock that has run away from its trend line.

Going by Public Information

A lot of things affect stock market and the latest news releases is definitely one of those. However, the public information that you have access to, may not always be true. Make sure the news that you are reading is accurate, before making any decisions.

Selling on Pull Backs

Nothing is assured in a stock market. What was a winner stock today can turn into a loser at the blink of an eye? This is why many traders make the mistake of selling winner stocks too early, in order to book profits. If you want to maximize your profits you need to understand the difference between minor pull backs, actual trend reversals, and money-making trends.

Taking Too Much Risk

Your risk profile is something that will decide how much you are ready to invest in which stock. Unfortunately, there are many who don’t understand this. They think taking more risks makes them the best traders. Risk only so much that you are ready to lose. Time your decisions properly based on accurate information.

Going Against the Mood of the Market

Trying to make money when the mood of the stock market is against you is like paddling a canoe against the current of the river. You are never in control of it. It is very important that you consider the mood of the market before picking any stock. Always be in the group that is in control of the stock.

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