When you join the investment and trading world, you’re in a whole new place. It’s an exciting moment that gives you a rush, even when you have only a small amount of success. All of that excitement can be an excellent motivator to keep going, or it could be what causes you to make irrational decisions, ultimately throwing everything away.
Trading is not something you can do emotionally. It requires a level head and disciple to make the best decision for your situation. Too often, new traders will ride the high from success and make a drastic change that costs them gravely.
Prevent yourself from throwing everything away by learning the common mistakes new traders often make.
No Money Management
Money management is essential in that it protects your capital. Adequately managing your money allows you to have a cushion to fall back on if you have a bad trade. It also allows you to be a bit riskier than you otherwise could be.
The idea of going big or go home won’t always work for trading. With that mentality, all it takes is one trade to lose everything.
Using Loans to Trade
Trading should be something you do when you have enough money set aside. You should still have enough to pay all your bills. A big mistake to avoid is using small loans to dive into the investment world.
If you use a loan, you’ll have to pay it back eventually. Imagine if your trade didn’t go as planned and you lost it all? Now, you’re back to where you were before, but with a loan to pay back. If you know you’ll have the money by the due date of the loan, then maybe it’s something to consider to get you started (small loans through Credit Ninja could help).
Not Accepting the Loss
No one wants to lose when trading because that means they lose money. However, it will eventually happen at some point. When that day comes, it’s important that you cut your losses and move on.
Many new traders hold on to something that is costing them dearly, with the idea that things will turn around for them. When you begin, you should have a point that is your absolute maximum for sticking around. If it hits that point, then you cut your losses and look somewhere else.
Making Up For a Bad Trade
Emotional trading is never a good idea. If you take a huge loss, that doesn’t mean you should put more into your next trade. Many new traders (even experienced ones some days) will get caught in a cycle of vengeance trading. They loss big, therefore they trade big next time around to make up for it. In many cases, this idea backfires.
Not Being Prepared
The biggest mistake you can make when learning to trade is going in unprepared. Trading stocks is not gambling. Although there is a little bit of luck in the mix, the majority of your success will come from using the right tools and researching ahead of time. If you ask professional traders, chances are they didn’t pick a winning trade randomly. They would have done the research and weighed their options.
Don’t make these mistakes when learning to trade. The more you can do to prepare yourself, the higher chance you’ll have of being successful.