Stock Trading For Beginners: Common Mistakes To Avoid

In the stock market, you can take a long position and hold it for several years. Or you can buy/sell the same stock and exit within a few hours or days.

Why wait for years to realize your gains when you can bank profits before the day ends? Welcome to stock trading! During the thick of the COVID-19 pandemic, one in five Americans were trading in the stock market.

Although the stock market has been around for decades, it’s not too late for anyone to start trading. However, stock trading for beginners has a steep learning curve. If you trade blindly, it won’t be long before you lose everything.

To help you have more profitable days, here are some of the common mistakes you must avoid.

Failing To Learn The Basics

On paper, stock market trading looks easy. Choose an online stock trading platform, open and load up your account, and voila, you’re ready to start speculating on your favorite assets.

If you buy a stock and the price goes up, or sell and the price goes down, you can close the trade and bank the profit. Do this over multiple trades and you’re in business…Until you’re not!

Trading stocks without having, at the very least, a basic understanding of how the stock market works is akin to playing roulette in a casino. Stock trading shouldn’t be a 50/50 game. You can significantly increase your chances of making winning trades every time. 

As such, don’t go in before learning about bear and bull markets, market volatility, types of derivates, and more. The more you learn about the stock market and what affects price movements, you’ll the more you’re able to make good trades.

Holding On To Losing Trades

It’s no secret that every stock trader deals with losing trades. The difference between successful and failed traders is the number of bad trades they make and how quickly they cut their losses. 

As a beginner, you’re more vulnerable to holding on to your losing trades, often in the hope that the stock will reverse and erase your losses. Given enough time, most negative trades will turn positive, but the problem is your account might not have enough capital to sustain the losing position for that long. You’ll be wiped out!

Before entering a trade, ensure you have a clear stop-loss position. This is where you’ll exit the losing trade without any questions. Without a stop loss, you’ll be tempted to hold on to the losing trade longer than necessary.

Trading Without A Strategy

Day trading stocks without a well-defined strategy is a sure way to lose your money. A strategy keeps you focused and enables you to better identify opportunities.

There are plenty of strategies to choose from, but there are factors you should consider before settling on one or two. These include the size of your capital and the type of stock derivatives you’re looking to trade. These strategies, for instance, are ideal for options traders.

Be flexible with your strategies. If you’re struggling to get a hang of one, for example, try another one. 

Stock Trading For Beginners: Start Off Right

The stock market is a double-edged sword. It can be a haven for making untold riches, but it can also be a ruthless place where you lose your entire life’s savings. 

Stock trading for beginners can end badly, or it can be the start of a long journey to success. There’s a lot you need to learn, but trying to avoid these mistakes will improve your success rate.

Stay on the money section of our blog for more tips.