Did you get caught in the recent volatile Price movement of Rowsley in July? Tried catching the bottom but ended up having a big hole in your wallet? Want to avoid such mistakes in future? A similar event also happened in Best World.
And we, Kelwin and Roy, have listed out the Top 10 common trading mistakes which we observed from our clients over the years. Why is this important? Because such events will happen again and Will YOU be able to benefit from it?
So here are the Top 10 common trading mistakes that we often observed:
1. Trading without a Trade Plan
Clique as it sounds but when you fail to plan, you plan to fail.
This is a common trait we find in many of our clients from our years of observation. Very often they will go into a trade without any trade plan ie ENTRY PRICE , STOP LOSS and PROFIT TARGET .
Most would rush in because the stock has suddenly moved up, but when the stock suddenly comes to a grinding halt and moves down, panic sets in and doubt starts to arise. Hope starts to fill their emotion and stop loss become a no no to them at this point.
Trading without a Trade Plan is like walking in the wildness and hoping to come out alive. Well, only a few do survive and live to tell the tale while most get crawled by the bears and bitten by the snakes and barely make it out alive.
“So in short, HAVE a TRADE PLAN and trade what you plan and don’t go off course.”
2. Trying to Find the Holy Grail of Trading
Truth be told, We also would like to find the holy grail in trading. Want the brutal and honest truth? There isn’t!! If anyone claims he has it, Let us know, We also want to know. Good things must share!
We always hear this regret from our clients lamenting that they have spent thousands of dollars attending different courses out there, but still losing money trading the market.
Many retail traders often jump from one strategy to another. When the strategy they just learnt do not make them money on their trades they give up and try something new or attend another course ploughing thousands of dollars with the hope of finding that holy grail
“We suggest traders should find a method that suits them and keep working and refining that strategy while having stop loss to manage their risks.
Successful traders are Masters of their trading strategies. And often they use only 1 or 2 trading strategies which they are comfortable with.”
3. Letting the losses run
We have seen many good traders drop out of the trading game, due to big losses. These big losses could be attributed to either
|1||Not cutting the losses in time and letting their losses run|
|2||Being complacent with a few winning trades and not wanting to cut loss because you know it all.|
|3||Trading too big Quantity for their Trades (which we will talk later in the points below)|
“Successful traders are discipline in their cut loss, they will exit a trade once it hit their stop loss levels before proceeding to ask themselves what went wrong with the trade (e.g what news is causing the stock to go against them etc). This is important as they know that capital preservation is crucial to staying in the trading game and one big loss is all it takes to wipe out their trading capital. They are comfortable in cutting small losses and reposition themselves again in their next trade.”
4. Trading too big a size beyond one’s comfortable level
Very often we observed that some clients will use the same lot size for all their trades without regards for their stop loss level from their entry price and they only realised the magnitude of their losses when they exited their trades.
For instance assume same trade size, a trade setup with a 10 cents stop loss, will potentially incur double the loss amount, compared to a trade setup with a 5 cents stop loss.
With just a few bad trades, some could incur huge losses due to trading too large Quantity of shares per trade.
“To avoid such mistake, one should first determine the amount he is prepared to risk (loss) for each trade, then determine the entry and stop loss price for the trade. With this 3 variables determined, the trader can then determine the Quantity of shares he should enter using a simple formula.
This useful formula is often shared in our regular client seminars, so do sign up and open a trading account with us, if you would like to be educated on how to use this simple and useful formula.”
5. Failing to take profits
Greed is often the culprit for this. When a stock goes to the target profit zone, some traders may decide to wait for a while and hope for further movement in their favour. This is where we observed greed may set in and they fail to take their profits only for the stock to reverse and start going against them.
Profit to loss is probably one of the greatest stock market sin and to avoid such mistake, we may humbly suggest considering the 3 possible actions to protect your profits.
|1||Take all profits when the stock goes to your target profit area|
|2||Take partial profit at the first target profit area while trailing your stop loss on the balance of your position to protect the profits for your balance positions.|
|3||Trail your stop loss, if you intend to hold all your position for higher potential profits.|
“It’s important to Remember it is not possible to take profits at the highest level so it is always good to book some profits along the way when the trade is in your favour.”
6. Averaging Down or Up on a losing position
What goes up must come down and what goes down will come up? Most hold on to this saying, hence averaging down on a losing long position believing it will come up one day. But if we take the case of Noble which used to be $2 + and only worth 40+ cents now after consolidation. Or even Cosco in its hay day, then we will know the risk of averaging down in a losing position.
“To avoid such pitfall, traders should Never add to losing positions and must cut their losses when the stock reaches their stop loss point.”
7. Overtrading (Holding too many positions)
When a trader holds too many positions at once and the market suddenly goes against him, it may overwhelm the trader as he got many positions and do not know what to do with them.
The reason is if he were to cut all his positions at once, he would incur big losses as even though each of his trade loss is a comfortable amount for him. Having too many positions at once also make the trader difficult to monitor all his positions.
It is also wise not to hold too many stocks in the same sector. For example, holding all three bank stocks in your portfolio. Well, if all move up then good for you but the moment they come down you might suffer a serious setback. It is good to diversify into a few sectors in your portfolio.
Hence it is important to know the maximum of positions that you are comfortable to hold when trading the markets and ensure you are aware of the total risks of the positions.
“There is no magic number on this, but maximum 4-5 trading positions at any time should be a good number for most people to handle.”
8. Listening to hot tips and not doing own homework
“I heard…..This counter got some news ar?” We get comments and questions just like these as rumours make their way around the market. Clients often get trap chasing a stock after hearing some rumours.
It can be tempting as this stock could the next big one. Or a potential takeover could happen. Forums are often littered with such ‘tips’ so the best advise we can give is to go back to the chart and come up with a trade plan. NEVER rush into a stock just because your friend or broker tells you so. Do your homework. You Reap what you Sow
“If you need an extra pair of eyes to help you along, you can always Contact Us. We’ll be glad to guide you for free!”
9. Not keeping a Trading Journal
One secret of a successful trader is to keep records. Unlike love which keeps no record of right and wrong doings, A disciplined trader keeps track of his trades.
“Detailing down each of your trades in a trading journal is vital, mistakes and wins should all be recorded so that you can do a detailed review to see what is needed to be twigged in future.”
10. No Proper Training
Lastly, if you have not got any training and want to trade, well it is kind of like a layman taking on a boxing champion which we know what the results will be.
You will either come out badly bruised or worst-case scenario ends up in the hospital.
Likewise for trading, without proper training, the market will be brutal and will come at you and chew you up.
“We do conduct free training for our clients in order to equip them for the fierce battle. So are you ready? Click here to know more about our awesome training.”
So here we have summarised the Top 10 Trading mistakes that we have observed from our clients, during our career as stockbroker. We hope these mistakes that we pointed out will help you greatly in analysing your trading areas of improvements and become a better trader!
Kelwin & Roy