Editor’s Note: My friend Bryan Bottarelli from Monument Traders Alliance is one of the most accomplished traders I know… but he’s also a phenomenal teacher. Whether you’re a complete newbie or practically a pro, I believe there’s something you could learn from Bryan.
Below, he runs through three of the most common mistakes traders make – and how you can avoid them.
– James Ogletree, Managing Editor
It’s a new year, and you’re probably intrigued by the immense profit potential in the markets right now.
You see all the hype surrounding the current “hot button” sectors.
Artificial intelligence…
Quantum computing…
Blockchain…
The list goes on and on.
Then you hear about your friends making profits…
And now you want a piece of the action.
But at the same time, you’re also intimidated by the terminology, unsure of the risks involved and skeptical of your own ability.
As a result, you haven’t traded yet.
Well… starting today, we’re going to change that.
Today, I will review the top mistakes new traders make – and how to avoid them.
These are some of the first things you should check off your list before jumping into the market.
They’ll help you learn how to prepare yourself – mentally, emotionally and financially – to trade successfully.
You’ll also quickly come to understand how the right trading methods can tilt the odds in your favor.
And most importantly, by the time you finish, you’ll realize that you can – confidently – begin to harness the incredible profit potential of the stock market.
Let’s get right into it and not waste any more time. Here is the first big mistake most new traders make…
Trading Mistake No. 1 – Jumping in Without Checking the Water First
It’s not a good idea to hop in a car and pull out onto the freeway without first learning how to drive.
In turn, before you start risking your hard-earned money, it’s critically important that you get familiar with trading.
That’s why I recommend that you set up a paper trading account.
This offers you a number of advantages…
First, you’ll get familiar with how to enter and exit trades.
Second, you’ll get comfortable with the language.
And third, you’ll get all of your mistakes out of the way NOW – before you’re using real money.
For instance…
Did you buy a put – instead of a call? Oops.
Did you sell – instead of buy? Oops.
Did you trade the March 1 expiration – instead of the April 1 expiration? Oops.
These are all rookie mistakes that we’d rather you make now – in the preparation stage – when they don’t cost you real money.
Taking the time to do this exercise right now – at the start of your trading journey – will eliminate more mistakes and make you more money than anything else you could possibly do.
At Monument Traders Alliance, we recommend the ThinkorSwim platform, but many of the big-name brokerages offer paper trading accounts as well.
If in doubt, reach out to your brokerage’s customer service department, and they’ll show you the way. (Getting the customer service number is part of avoiding that first big mistake!)
Trading Mistake No. 2 – Not Having an Exit Strategy
I can’t reinforce enough the importance of setting your endgame.
In today’s market, never fail to cash in your profits when you can.
Virtually every game you can think of comes with a defined start and a defined end.
For instance…
- Monopoly is over when your opponents go bankrupt.
- Running a marathon ends once you cross the finish line.
- A professional baseball game typically lasts nine innings.
When it comes to Wall Street, though, the game never ends. In fact, you’re always required to call your own endgame, which is unquestionably one of the most difficult aspects of investing. Many speculators fail to call their endgame, which leads to them holding on too long… and eventually losing.
Never expect to “bottom tick” your entry or “top tick” your exit! Nobody in the modern history of the financial world has ever been able to consistently buy at the exact bottom or sell at the exact top!
Expecting to do so is nothing more than an exercise in futility and frustration. Every chance that it gets, Wall Street will mess with your mind and make you second-guess yourself – oftentimes making you feel stupid.
Prevent this from happening by using this simple trick: Call your endgame and sell half.
If you ever find yourself asking whether to cash out or continue holding, always, always, always compromise by selling half of your position. That way, you lock in some profits but are still positioned to capitalize on future gains.
Sure, you’re potentially making less than you might have by not selling, but you also have the security of knowing that you cashed in a portion of your position when that little voice of reason inside your head told you to exit.
This is the best way to have your cake and eat it too – which, on Wall Street, doesn’t happen too often. After all, if you end up taking profits too soon, who cares? As a wise investor once said, “Nobody has ever gone broke taking profits.”
Trading Mistake No. 3 – Not Having Access to Good Research
The last big mistake new investors make might be the most critical of them all…
Investing without having good information or research.
You certainly don’t want to go into any new venture totally blind.
There is a ton of information for new traders out there, but it’s not all of the same quality.
Anyone with a webcam and a brokerage account can provide trading advice.
But if you want the best chance for success, find the very best advice.
I’ve been actively trading the markets for decades.
Back in 1999, I started trading in the Apple Computer trading pit on the Chicago Board Options Exchange.
And today, it’s my job to keep track of every stock, anticipate every event that influences market conditions… and distill it all down into the most potentially lucrative investment recommendations possible.
Avoid Those Common Mistakes!
Now you know the biggest mistakes that newer traders make – and how you can work to avoid them.
Your best chance of success relies on keeping it simple.
There is no need to overcomplicate the market. Focus on consistency rather than trying to get into every “promising” opportunity you see.