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5 Costly Mistakes in Stock Trading

5 Costly Mistakes in Stock Trading

Did you know that only about 30% of retail investors in the Stock market record significant capital gains? What’s even more concerning is that up to 99% of these traders lose their entire investment portfolio because of common, avoidable mistakes.

Many new traders have the misconception that the Stock market is a get-rich-quick investment, at which point they make rash, emotional decisions without proper forethought. While the FX market can be profitable, it requires discipline, patience, and a well-structured strategy.

That said, it is critical to ensure you dedicate your time and resources if you want to succeed in Forex trading. Here is a shortlist of some of the common mistakes made by retail traders.

Grave Mistakes in Stock Trading

Lack of Proper Timing

Any expert trader will tell you that learning how to effectively time your trades is key. Novice traders tend to overtrade or trade too many times a day. This ill practice is attributed to a lack of patience and greed. As a new trader, you need to understand that the ability to evaluate market movements is critical.

Extensively evaluate price movements and weigh your options before you settle on a position. While global markets operate differently, there are periods where the market is at its most liquid. Periods of high liquidity are the best place to start as you develop a suitable technique. Note that even with an excellent strategy, improper timing will significantly reduce your chances.

Selecting an Unsuitable Trading Platform

While finding the right broker can be tedious, we recommend that you take your time before opening a trading account with a new broker. A large number of brokers online exposes new traders to scam artists and unregulated platforms.

Fortunately, many governments have strict rules when registering brokerage firms, so finding one that suits you shouldn’t be a tough task. Such elements as easy trade execution and customer support are some of the primary features you should look out for. Note that choosing the right trading platform will have a tremendous impact on your trading journey, so ensure you prioritize safety above all else.

Trading on Several Markets

Another bad trading habit is trying to place positions on several markets at the same time. While many expert traders diversify their portfolios by trading on different markets, it is ill-advised for beginners to do so without proper research.

Irrational trading is one of the common causes of losses in the Stock market, as many investors trade on multiple markets without understanding how these markets work. It is advisable to trade on a few markets as you learn the ropes, as it is easy to monitor your positions and better understand how things work.

Like overtrading, putting positions on several markets is considered noise trading, and it makes it difficult to track your trades or develop a proper review. Trade on a few options as you begin your trading journey, then you can diversify when you get more experience.

Irrational Trading after Losing

Some losses are just bad luck. The volatility of the stock market means that some days are just bad, and there is no fundamental data to justify why you are losing all your trades. The mistake many investors make is irrational, emotional trading after losing multiple trades.

If you have a win rate of less than 20%, it is time to call it quits. Ideally, an acceptable win rate should be between 50-60%. Anything below that should be a red flag. Operate on low risk and stick to your strategy. Stock trading has more losers than winners, so do not give up. Take a break after an enormous loss and reboot, evaluate your technique and improve your odds.

Lack of a Stop-Loss Order

Another pitfall of noise trading is the lack of a stop-loss order. Never trade or use a strategy that does not allow you to offset a trade when the market moves against you. Ensure you set a stop-loss order that specifies the base price enabling you to get out of a position when things do not go your way.

A stop-loss order is the most efficient risk management technique, enabling you to minimize the chances of losing your stake. This feature also ensures that the losses you incur are manageable and ones that you can recover.

Bottom Line

The lax regulations on Stock trading mean investors have a much larger bag when it comes to leverage. For this reason, many investors make huge losses because they over-leverage. While it is possible to profit from trading, it is equally likely to lose your entire investment portfolio through a silly mistake.

Most of these mistakes are easily avoidable. All you have to do is develop a workable strategy.

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