Many new stock traders lose confidence and money when they first start trading on their own. By sidestepping common mistakes, new investors can avoid learning these lessons the hard way.
1. Believing An IPO ‘Can’t Miss’
Unfortunately, there was a whole class of first-time investors that got burned on the infamous Facebook Inc IPO. Facebook’s IPO price had very little to do with the number of users the company had. Many buyers learned through this event that popular companies aren’t always good investments.
2. Catching A Falling Knife
Momentum plays a powerful role in stock price movement. Just because a stock price is low doesn’t mean it can’t go lower. Sometimes it’s better to wait until a bottom has been clearly established before buying, even if that means you don’t buy at the exact lowest price.
3. Riding Losers
Stubbornness and pride are two traits that will do nothing but cost you money in the stock market. Nobody likes to admit they were wrong, but there is no sense in holding onto a bad investment and watching your money bleed away. Nobody’s perfect; just sell and move on.
4. Averaging Down
A very specific type of stubbornness related to bad investments is the idea of buying more stock at a lower price to lower the overall average price per share of the entire position. If you still believe that the stock is a good investment even after the share price has dropped, averaging down is a great trade to make. However, averaging down only compounds losses when a stock has fallen for good reason.
Read the rest of this article (and all my other articles) for free on Benzinga by clicking here
There’s way more than 10 mistakes that new traders make. Trust me, I made plenty of them myself. That’s why I devoted an entire chapter of my book to common trading mistakes! Want to learn what to watch out for? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!