Investing or trading is a trial and experiment process for every investor. They learn a lot from their mistakes. Investors trade stocks and securities for holding long-term, whereas traders buy & sell options & future positions for short-term.
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Even though investors and traders are involved in different kinds of trading transactions the mistakes they make is common. Let’s get to know the common trading or investing blunders to avoid.
No trading plans
Seasoned traders enter a trade transaction supported by a well-defined strategy. They are well aware of how much capital to invest, risk affordability and even their entry & exit points. New traders may either not have a trading strategy or if they have may stray from their defined strategy. For example, go short as soon as share prices decline-get whipsawed ultimately.
Never overlook your risk tolerating capability. Remember, stock ticker NYSE: SENS is volatile. Some investors cannot deal with the sudden ups and downs of the share bazaar. A few of them hope for stable, regular interest income. Such investors can be defined as low risk-tolerance traders.
Such investors are better off capitalizing on stocks of established companies and avoid startup company’s shares. Every kind of investment accompanies risk factors. If you find an investment offering attractive returns then even check its risk profile. Invest an amount you can afford to lose.
Ignore stop-loss orders
Stop orders are available in different varieties. It can limit losses because of the stock market moving in the opposite direction. These orders get automatically executed as soon as your set perimeters are fulfilled. The thought of stop order benefits far outweighs the risk of ending at some unplanned price.
Allowing losses to grow
Successful traders and investors proficiently adapt small loss, if one trade does not work and move to another. Unsuccessful traders get paralyzed, of trade prices move against them. Instead of acting instantly to cap loss, they hold on for long with a hope that prices will work out eventually. A losing trade ties trading capital for long, losses mount and ultimately causes capital depletion.
Human is prone to make errors. Even the most successful investors underwent losses but they accepted it and learn a lot from their mistakes.