Top 3 Worst Trading Advice
Is The Best Advice Really Free?
Advice can come from anywhere whether it be from your parents, teachers or friends. A lot of advice is good because it comes from someone looking outside the box and giving you an objective perspective. Those advice are mainly based on their opinion and experience which can make it valuable.
When it comes to trading it’s funny how those with little to no trading experience have the “best" advice to give.
I can recall many years before even considering learning to trading, a fellow colleague of mine in a retail store that I once worked with gave me his advice about trading. Trading hadn’t really come to my mind during those periods as I was quite young then and I’m not even sure how the conversation even came up. What I do remember him saying was how hard it was to trade despite him never actually experiencing trading himself, however that was enough to put me off.
It was years later when I attended a trading seminar and learned more about it and saw the potential, that I was able to shake off the negative words from my former colleague and experience trading for myself.
I have been able to interact with traders from around the world that are starting up. What I have found is that regardless of where in the world someone lives, the same advice keep floating around and I want to highlight the 3 most common and worst advice you must avoid. There are a lot more but these ones are responsible for losing people a lot of money.
1. Hot Tip About A Stock
Would you accept electrical advice from a plumber or health advice from a smoker? I should hope not.
So we have to ask the question, why do so many people with no trading experience give advice about buying stocks which they think will bring guaranteed riches. Secondly, why do so many intellectual people accept and trust that piece of advice as though they heard it from Warren Buffett. Even if it’s your uncle giving you the stock tip and you trust him, doesn’t mean it will make you any money.
Stock tips are bad for many reasons. The stock in question may have made a lot of people money, but by the time you find out about it the steam could have run out and start to reverse. The stock may have low volume and be difficult to sell off once purchased. If you’ve put a lot of your savings in the purchase of the stock and you lose it, there could be emotional repercussions and family disputes.
Know what investment you’re getting into and no professional trader is right about every single trade, so don’t expect to be right about that one tip you get. Invest in your trading knowledge and learn how to make money consistently as a trader.
People like tips because it fills that desire to get rich quick. What actually happens is they get broke quick so avoid this mistake.
2. Catching A Falling Stock
When a stock falls and the price keeps getting lower and lower, traders look at it like they’re getting a discount if they buy it at a cheaper price. The idea of paying $20 for a stock which cost $90 two months ago sounds really appealing.
Now there is a fundamental reason why this is wrong, you don’t actually know how low it can go. Let’s say you do get it for $20 and feel good about the purchase. What happens if it then goes to $12 then $7 then $4. What will you do then? Maybe you’ll see this as another opportunity to buy more at a bigger discounted rate. Traders with little experience think this way because they think the market will always go back up. This may be true to a certain extent but it could take years before it goes up again if it does even do that at all.
What the trader is doing is trying to buy the bottom of the market and make huge profits from its rise. This is actually financially dangerous and like trying to catch a falling knife without getting hurt in the process. It’s very difficult and not worth the pain.
Trading is just about common sense. You buy something that is going up and sell something that is going down. When you try to buy something that is going down you’re swimming against the current and turning a simple job into something more complicated.
Keep trading simple and go in the direction of the trend.
3. Taking Profits Early
To profit as a trader and keep the odds in your favour, the idea is to risk small and make large profits. The only way to make large profits is to let trades run for as long as the trend continues in your direction.
New traders that I have come across become fearful of losing profits when a trade is going well. For whatever reason, they feel the need to close out the trade early to avoid the possibility of giving profits back to the market. Closing off the position is not based on their logic but based on their emotions which is bad for their trading. You may bank a few hundred dollars/pounds depending on which country you reside. But you’re letting go of ever banking thousands if you continue to bank small profits. Your exit should be based on a logical trading decision which must be followed rigorously.
Holding out on taking profits early is a hard task to overcome and most of us have suffered from this at some stage of our learning, but over time this process will become easier.
A friend of mine recently started out trading and we were both in the same trade. He made a bit of profit and was convinced the trade was going to reverse and said he wanted to exit. I told him that I was going to stay in the trade until I had reason to believe from my analysis that the trend was reversing. He said he doesn’t want to be greedy and ended up closing out his trade. I thought it was interesting that he felt that staying in a trade that is working is being greedy. The markets make vast amounts of money available to those willing to grab it, so it’s important to concentrate on your thoughts as a trader. That belief that he would have been greedy for going for more money says that he doesn’t deserve more. If you truly believe you don’t deserve more, your mind will subconsciously find ways to stop you gaining more money. Accept the fact that you deserve to be wealthy and start attracting that into your life and you’ll see the positive effects it will have on your trading.
Be Mindful Of These Bad Advices
As I mentioned earlier, there are more bad advice which can affect your trading but focus on these 3 first and you will improve the way you trade.
Learn from traders that are consistent and have a lot of experience that can mentor you. Trading is simple but we often make the work harder for ourselves so avoid these mistakes and have them written somewhere so you can review them regularly.
