Investology

Trading Mistakes To Avoid

In the market, traders are known to be more into getting short-term gains. For this reason, they get into more frequent transactions than investors. And because of this, they are prone to make more mistakes due to the higher number of trades they have to make on a regular basis. And with that, here are some of the more common mistakes most traders are prone to make.

No Trading Plan

In any market, developing a plan of attack can make the difference between achieving success or otherwise. The same goes for using a trading plan. Many savvy traders always think of planning moves before they make any trade. This plan usually includes knowing the amount of capital they need to make a trade, setting the entry and exit points, as well as the risks they are willing to take on a particular position. Some fail of doing this beforehand and end up making a lot of mistakes along the way.

Failing To Use Stop-Loss Orders

A stop-loss order is a trading mechanism that allows traders to limit their losses in the event a stock starts behaving wildly. It is an order that triggers to sell a certain position on a stock based on certain parameters. Traders set the parameters on when the stop order is to be executed. When the situation happens, the order is executed automatically. It basic aim is to avoid further losses on a certain position. Unfortunately, many fail to make use of stop-loss orders when making trades. This can lead them to considerable losses because of it.  

Acting On False Buy Signals

There are certain situations during the day where stock prices may go up or down. This may lead some traders to look for falling prices as an opportunity to buy. Doing it outright without a lot of thought can be a mistake. There are certain factors that may cause the stock prices to fall. Make sure to analyze the company fundamentals before making the trade based on declining stock prices. This will usually help traders pinpoint the reason for the falling stock prices and whether the fall will continue. Simply relying on false buying signals without investigating can be a costly trading mistake to make.