Investing

Common Mistakes Newbie Stock Traders Make

Are you new to stock trading? Then here is a list of well-known novice mistakes that you may want to avoid making in your career:

Not Vetting Websites

There are thousands of stock brokering and day trading websites out there. Not all these sites are good, or even legitimate. It’s very important to do your research before opening a stockbroker account with a site. Learn about the site in advance by reading reviews, customer comments, and so on. Check if the site has a physical business structure. See if the site has been mentioned in legitimate newspapers.

In addition to actual trading websites, there are also supplemental websites that educate new traders on the stock brokering business. If you want to use these sites for educational purposes, research them as well. Look for reviews like this Warrior Trading Review to learn about the site more. Some educational websites may just function as ad platforms for dubious trading sites, which you should avoid.

Assume that You are Buying from or Selling to the Company

Some new stock traders hold on to the erroneous impression that they are buying stocks from the companies that the stocks originate from. In reality, the companies listed on the stock market do not trade stocks by themselves. The traders buy and sell shares with other shareholders. If you buy shares of Facebook stock, you are not buying from Facebook Inc, but from another shareholder. If you are selling Facebook stock, you are not selling the shares back to the company, but to another shareholder just like you.

Trading without a Plan

Trading stocks is not gambling. It should never be done on a whim, by following “your gut.” Your trading career should begin with a detailed plan that includes how much you are willing to spend, how much loss you can bear, and how many stocks you plan on trading. When you have a plan, you are more likely to get “whipsawed,” where you end up selling a security before the price increases.

Most newbie traders don’t start out with a plan and are highly likely to abandon existing plans. Don’t follow this course. Heed advice from traders more experienced than you are and come up with a solid plan. You can use a stock trading education website like Warrior Trading to plan your course.

Not Placing Stop-Loss Orders

The ability to withstand minor losses is just part of being a stock trader. However, a new trader should never allow small losses to accumulate and become sizeable. This can happen when stop-loss orders are not implemented. Stop-loss orders are not without risk, but the benefit far outweighs that. Therefore, learn how to use these for the maximum benefit of your portfolio.

Giving in to Herd Mentality

New traders are particularly susceptible to doing what everyone else is doing. If you do this, it’s easy to end up overpaying for rising stocks, possibly ones that may soon turn around. The “trend is your friend,” is a saying on Wall Street, but veteran investors know when to get out of a trading spree that becomes too crowded.

Succeeding as a stock trader requires a great deal of experience and knowledge. While you are at it, make sure you don’t make the above mistakes.