Tag: trading mistakes

  • How to Cut Losses in Trading Stocks?

    How to Cut Losses in Trading Stocks?

    How to Cut Losses in Trading Stocks?
    The first and most important lesson in trading stocks is damage control. One of the methods is by cutting losses.

    By Guy Avtalyon

    This is the essence of trading – how to cut losses immediately. You have to learn this because it is something commonly named as damage control. And if you are not ready for the worst-case scenario and you get panicked, your losses in trading stocks can be enormous. One single bad move can destroy your trading account. 

    Not all trades will be winning, so you have to know how to cut losses in trading stocks.
    First and principal, you’ll need a good trading plan. The best plan is to exit a losing position and cut losses when the trade doesn’t match your plan. So, the trading plan is mandatory.

    Every single trader in the world has had or still has losing trades. That isn’t a problem. The main problem is how to cut losses and have control of your trades. You are the one who makes decisions and we are pretty sure you wouldn’t like to have a great loss. There are some methods that will give you a chance to reduce the losses. And here is how to cut losses in trading stocks.

    How to cut losses in trading

    Learn from the kids. When they just start walking it is normal to fall but every single time they will get up and continue walking. The same is with trading stocks. Every trader at some point will experience losses but the true wisdom is how each of them controls the damage. Damage control means cutting losses quickly without hesitation and quickly. So how to cut losses in trading stocks quickly? 

    There is some unique rule: when your stock falls for 7% – 8% it’s time to exit the trade. If it is so simple why would we spend so many words to explain how to cut losses? 

    Well, it isn’t that simple. When you have a losing trade and exit after your stock drops for a significant amount, you’ll have to compensate for that somehow, you’ll have to reclaim your loss. There is some math behind losses. 

    For example, let’s say you bought a stock at $100 and after several days its price dropped 7% to $93. What you have to do? You’ll exit the position, of course, and enter the other trade to recover from the loss. But where is the math? Here. You lost $7 on a single trade, right? And now you’ll need to profit more than it is the case if you didn’t have that loss. Your available capital is $93 now and your gain has to be 8% on that capital invested to cover the previous loss. It isn’t so hard you might think. Yes, your profit is actually zero now.

    What will happen if you hold that stock?

    Let’s say you are pretty sure that your stock will bounce back and it will be worth $150. And you are brave enough to enter the next trade. But the stock market is cruel, it doesn’t take care of your wishes and says you have to think, to make calculations and not to make wishes. What if your stock drops at $50 which is possible. 

    The math behind says you’ll need a 100% gain to cover your loss. That is a bit harder than to reclaim 7%. And, be honest, how many stocks, that can double their price, you own? So it isn’t a smart decision to hold a stock further if it has a 7% or 8% decline. A smart decision is to close the trade with reduced loss and find the new winner.

    The logical move is to cut losses quickly

    The understanding of how to cut losses in trading stocks will help you to protect your overall portfolio. Put your emotions aside, you might love that stock, adore the company but you have to admit that holding a losing stock is dangerous. No, you didn’t buy that stock at the wrong time or you have bad luck, your losses come from your behavior. Your small mistakes turned into a big failure. 

    When trading stocks or any other asset, the main goal is to profit. So, why would you like to hold a loser? 

    If you avoid selling such a stock you are avoiding blame, right? You have to understand that every single human makes mistakes and bad choices. All the time. So, what? It isn’t a problem. The true problem is when you don’t want to admit yourselves you are making mistakes and they cost you a lot. 

    Why would you stay to hold such a losing position? 

    Maybe you hope your stock will bounce back to the buying price and sell it? That isn’t going to happen. Well, it will happen one day in the future but your losses will be bigger and bigger. Nothing will help you to “delete” this mistake. Why? What had a tendency to fall, will continue to fall. In most cases.

    That’s why it is very important to understand how to cut losses in trading stocks.

    If the pattern doesn’t work, exit your position

    It is possible for a pattern to turn against you. There is no other way than to take a loss. Don’t hesitate to exit the position. You don’t need to wait for your trade to become a loss. Even a small gain is better than a small loss. Frankly, small gains are what beat markets every day. Many experts will advise you to get out of the trade with a small gain in case your pattern is working against you. If your stock doesn’t do what you expected and planned, just cut it. In this way, you’ll stay in control of your trades. 

    For example, you bought some high-tech stock in a high spike of your interest. Let’s say it is a new company with a great prospect, with a new product, everything is excellent. In theory, such a stock should skyrocket immediately. Excellent pattern, you may think. But what if the stock misses rising? What if you expected the price could rise up 30% and it hit 25% and suddenly stopped rising? Will you wait for it to fulfill your expectations? If you’re smart enough you’ll get out.  

    Why are we so resolute about this? 

    We assume you have a trading plan before you enter the trade and you shouldn’t care if you could make $1 or $100 if your pattern is working against you. It has to work what you require. Otherwise, get out because you don’t have control of your trade. That is how to cut losses in trading stocks by following your trading plan. If you do that you’ll don’t need to wait for the trade to become a loss. You’ll be able to exit exactly on time and cut potential losses.

    A few ways of how to cut losses in trading stocks

    First of all, you must have a trading strategy. That means you must have all rules on-hand, no matter if you want to buy or sell the stock.
    Further, you must know why you are buying a particular stock, but also, it is mandatory to know why you are selling it. You have to have a criterion. So, set rules for each situation.
    The most important action in trading is to set stop-loss orders. And here is one suggestion, be smart and never adjust stop-loss order when the stock price is dropping, do it when it is growing.
    Analyze your portfolio on a daily basis. Consider why you are still holding some stocks. If you can’t find any reason, sell it, sell them more.

    Controllers when trading stocks 

    Even before entering the position, you’ll have to know how to control your emotions. This is extremely important when you are faced with losing trades and have to cover losses. Always keep in mind that losses are part of trading stocks and learn how to handle your emotions when the bad time comes. For that to achieve, you have to be prepared for every trade with understanding that you may have losses. You are expecting them. That will help you to defeat your emotions. During this long run, you’ll have failures, successes, difficulties, and you have to know how to handle them.

    Further, invest only the amount you can afford to lose. In short, always protect your capital. If the stock price runs against you, cut it. It is better to exit the position than to suffer a bigger loss. Limit the risks. For each trade, you must estimate the risk/reward ratio.

    If your trade goes exceeding the risk you planned, cut it, cut the potential losses. And do it quickly, especially if the stock price reaches your stops. Just don’t hold the position and follow your plan. Never think you can wait a bit more. In a few seconds, your small loss could easily turn into huge losses. Give yourself the space to come back to the game.

    Successful traders aren’t unreasonable and think ahead. By doing so they are prepared to adjust their position size if necessary.

    In trading, it isn’t always possible to avoid losses. Honestly, it is almost impossible. But you can reduce them only if you learn how to cut losses in trading stocks. There is nothing wrong with selling a stock at a loss but do it on time to minimize it. When you cut losses with a clear head you’ll be ready to return to the market. Yes, we know, it’s hard to have a sharp mind when you are faced with the potential loss of thousands of dollars. Just follow your trading plan, stay with it, and follow the basic rules of trading. Nothing more, nothing less. The market always recovers. You will too.

  • Trading Mistakes and How to Avoid Them

    Trading Mistakes and How to Avoid Them

    Trading Mistakes and How to Avoid Them
    If you have losing trades it is possible you have too many trading mistakes. Recognizing mistakes is half of the battle. The other half is how to avoid them. 

    Trading mistakes are common both for traders and investors, for the novice and experienced traders. Even though traders and investors practice different styles of trading, they often make the same trading mistakes. Some of the mistakes are more costly for investors, some for traders. For both kinds of market participants, it is essential to understand these common trading mistakes and avoid them. Think about bad trades as a process of learning and after you collect a significant number of them you’ll be more experienced and able to perform better trades. But this process can be shorter if you have an upfront understanding of where trading mistakes could arise. 

    That could give you a chance to react correctly and quickly enough to protect your investment portfolio. 

    Here are some trading mistakes that happen to both experienced and novice traders. These suggestions could help you to recognize them and give you a chance to avoid or correct them. So you should be able to gather the profits!

    Trading mistakes that traders shouldn’t do when trading

    Never risk a huge amount of your capital or going all-in. We all have a great expectation to earn a huge amount of money but one of the trading mistakes is putting all capital into a single trade and expect that could provide you great profits. How is that possible if every single trader, when asked, knows about the 1% rule. That means you should never put more than 1% of your capital into one trade. This is one of the common trading mistakes because traders constantly try to gain it all back. Mostly without a risk management trading plan. But even if you have a trading plan, sometimes you’ll be pushed to ignore it. You could be motivated to take a large trade which usually you wouldn’t. Don’t do that, try to resist. Stay stick to your risk management trading plan. The temptation can be a very bad companion in stock trading.

    Even if you think you are ready for a big portion in a single trade. Trust us, you don’t want to jump into the deep end. Especially if you are not skilled enough. Going all-in may cause unpredictable damages, financial and emotional, so great that you may decide to give up the stock trading forever. 

    The much better approach is to trade gradually at regular intervals and slowly increasing the amount per trade. In this kind of approach, you have two benefits: you won’t put all investment capital at risk and you’ll remove emotions when deciding when to buy a stock. 

    Not having a trading plan is a great mistake in trading stocks

    Among trading mistakes, this particular is maybe the most dangerous. If you don’t have a trading plan how will you know when to enter the trade or exit the trade. Skilled traders get into a trade with an outlined plan. They know their precise entry and exit points, how much capital to invest in the single trade, and what is the highest loss they want to take.

    Novice traders usually don’t have a trading plan before they start trading. Even if they have a trading plan, beginners could be more apt to turn out of the plan and take more risks and reverse the course totally.

    For example, they enter the trade with the belief that the stock price will rise shortly after they enter the position. That isn’t going to happen! But this fact is known to experienced traders, beginners don’t know that. And what happens the next is the trade is going against them. But most of them will not exit the position, they will hold in the hope that the price will go up. And the price continues to fall more and more but they don’t want to sell the stock, they don’t want to take the loss and end up losing everything. That is one of the most dangerous trading mistakes. 

    Further, even if they found a great entry point and the price starts to rise. Honestly, it could be a matter of luck, not knowledge. What do beginners do? They become greedy. Instead of selling stock and taking a profit, they hold the position. Very soon, the trade turns against them, and a winning trade shifts into a losing trade.

    Shorting stocks too early 

    If you short the stock too early it is more likely you’ll be destroyed on your shorts. Everything that flew always landed. This is especially true of stock trading and pumps and dumps. 

    For example, you notice a stock in the early stage of a pump. You are happy to buy and drive along as it increases. But at some point, it starts to drop, and you may profit by selling short. But when is that moment? When you have to go short? The timing is extremely important. What if you sell too soon? How to recognize that exact moment for short selling? First, you have to find the top on the stock. That means you have to recognize the resistance level. That is the point where buyers are leaving, but also the point where the sellers appear and begin to take over the stock.

    Short selling is dangerous anyway and only experienced trades should use it. If you practice this strategy or want to, be careful. Without proper knowledge and experience, you’ll jump into one of the biggest trading mistakes.

    Use stop-loss orders to avoid trading mistakes

    Cutting losses is a very serious issue. If you don’t cut your losses quickly you could lose everything. This mistake apparently takes most of the money. Avoiding to admit that we’re sometimes wrong, we are actually admitting we’re human beings. Nothing is wrong with that. People are doing that all the time. Sometimes it can be good. But not in trading stocks. 

    The main problem with trading and you cannot find many people that would like to admit that, is that there is no possibility to be correct on your trades 100%. The best traders are correct under 80%. How do they manage to not blow up their accounts? Simply, they know when they are wrong, they recognize that and admit that. When wrong trade occurs just get out fast. Why will you wait? To make more losses? No one would like that. Just admit you are wrong and exit the trade while you still have a chance to reduce losses. 

    But you must decide about your risk before you enter a trade. You have to know your risk to reward ratio and how much you are comfortable to risk.

    When you identify what you’re ready to risk, enter the trade. But that is not the end. 

    Set a stop-loss order 

    You have to set the stop loss. For some traders, it sounds unnatural to enter the winning trade and promptly set stop-loss order. We have one question for them. Is it natural to lose all capital invested? And, yes, there is a possibility to lose everything without setting a stop loss. In this way, you’ll avoid making huge losses to your account. 

    Never neglect stop-loss orders. That will prevent you from extreme losses and lock in profit when you have winners. You have to set a stop loss for every single trade.

    You might think you don’t need this order while you are sitting in front of your computer all the time. But you don’t have that single one trade to monitor, sooner or later you’ll have more of them. It’s almost impossible to monitor several trades at the same time. Changes are speedy and it could happen that you don’t notice the stock is losing support. In that situation, everyone would like to get out as fast as possible. The stock price could fall a lot faster than you are able to set your sell order in. And what did happen? All your profits are wiped in a second. By setting stop-loss orders at the moment when the trade is filled. 

    Bottom line

    Trading stocks is not an easy job. It takes discipline, time, and knowledge. Some traders can’t handle it and gave up. Also, there is one thing you must know before entering this marvelous world, the most important part of trading is preparation to execute it.

    You cannot find a lot of people out there to help you figure out what trading mistakes to avoid. We pointed several but there is much more. To be prepared to avoid them, you have to learn and not be greedy. 

    As we said, trading isn’t easy but can be very profitable if performed properly. It’s okay to be wrong from time to time, but if you are wrong all the time you’ll never become a successful trader. Just admit your trading mistakes, examine what went wrong, and continue with success. While trading, your emotions must be under control. Okay, some level of fear is favorable, it can protect you from meaningless and harmful moves. But you have to be honest with yourselves and admit when you made mistakes. To remember them better, write it down in the trading journal. That will make things easier in the future.

  • Most Common Mistakes Made By Beginners In Trading Cryptos

    Most Common Mistakes Made By Beginners In Trading Cryptos

    1 min read

    Most common mistakes made by beginners in trading cryptos can lead you to a total disaster.

    We would like you to avoid them, so read this post very carefully and with due diligence.

    More and more people are beginning to show interest in trading cryptos. Although this is a positive development, there are some pitfalls to be watched by traders/novices. These common mistakes are quite serious and can relieve you of several thousand dollars in value of cryptos if you are not careful.

    Do not use suspicious exchangers 

    One of the most common mistakes made by beginners in trading cryptos is every exchange is the same. Not every crypto exchange is designed to be used for all altcoins. Using a wrong currency exchange can lead to a refusal or omission of withdrawal or the trading market becomes inaccessible at the wrong time.

    Always do your own research before you entrust your money to an unknown company because it can be difficult – if not impossible – to get it out again when things go wrong.

    Buying a scam is one of the most common mistakes made by beginners in trading cryptos

    The world of alternative cryptos is filled with many possibilities, however, it’s not all that it seems to be. Unfortunately, for novice traders, it is difficult to distinguish valuable and useless trading. You need to avoid any new coins until they show up well on the market.

    Investors want to buy potentially profitable coins as soon and cheaper as possible. Entering at a later stage will reduce the chances of gaining huge profits.

    There is a very nice point of balance between buying coins cheaper and investing in pump-and-dump (scum and drop) scams at the wrong time. Most retailer novices will experience another option even before they make their first big profit.

    Decisions made in panic

    Panic can be one of the worst motors for real trading. Markets are very volatile in the altcoin scene. There is nothing wrong with sometimes feeling the weight in your stomach, but panic should never determine how and when to trade. Many new traders allow their actions to be driven by panic and fear.

    Compulsive trade one of the most common mistakes made by beginners in trading cryptos

    It is strange that in a market where you can earn and lose in just a few seconds, there is also such a thing as “compulsive trading”, don’t you think? But it exists.

    Too often trading during the day can be a major problem for beginners traders. They will make the wrong decisions and allow the panic to be the driver of their decisions. Market monitoring is absolutely necessary, but it doesn’t necessarily have to jump at any time when it appears. It’s hard to learn the trading style from the first day.

    But here is a guide for beginners that may help you
    Errors will have to occur until you find a rhythm that suits your needs.

    Fingers to too many places at once

    Given the vast array of different types of altcoins that can be bought and traded through popular exchangers, diversification is a good idea.

    The best advice is to start with small amounts of one or two coins that look legitimate and potentially profitable. As you gain more and more experience, it is still possible to further diversify your portfolio and trade more crypto.

    This should help you to avoid the most common mistakes made by beginners in trading cryptos.

    And you know the main rule? Invest only as much as you can lose.

    Also, maybe you would like to read more about what to do while trading crypto and avoid the most common mistakes made by beginners in trading cryptos. We suggest you THIS

    If you find that someone is interested to read this feel free to share.