Five common trading blunders investors and traders must avoid

  • January 23, 2021 02:09 AM AEDT
  • Team Kalkine
    Team Kalkine
    Team Kalkine
    22208 Posts

    Team Kalkine comprises of experts who understand various markets nuances and are enthusiastic and passionate to provide best possible offerings in the form of insights and stories. The team has rich experience of working across different markets with...

Five common trading blunders investors and traders must avoid

Summary

  • Committing avoidable blunders while conducting transactions can harm both investors and traders.
  • The harm may be in different magnitudes since investors deal in stocks, exchange-traded funds, and other longer-term holdings, and traders are usually involved in positions for shorter periods, and a more significant number of transactions.
  • Trading without any concrete plan, chasing after current performances, and blindly following mechanical systems, are some of the most common blunders.

 

The prospects of making money generally entice people into stock market investing and trading. However, early losses due to common mistakes can be a quick turn-off. Committing avoidable blunders while conducting transactions can harm both investors and traders. The harm may be in different magnitudes since investors deal in stocks, exchange-traded funds, and other longer-term holdings, and traders are usually involved in positions for shorter periods and a more significant number of transactions. So, both investors and traders must cut down on their mistakes to make most of their trades. 

Image Source: Shutterstock

 

Five common trading blunders investors and traders must avoid:

 

Trading without any concrete plan

 

Entering the trading world without any concrete plan is unacceptable. A robust and well-defined plan is not only needed by newcomers but also by experienced parties. A trader, particularly, must know the exact entry and exit points in a trade. Similarly, he must have a clear idea about the available capital to invest and the maximum loss he is willing to absorb. When you operate in the atmosphere of uncertainty, every step forward must be taken with a proper caution and plan.

 

Only dumbs run after current performances

 

It’s good to keep your eyes and ears open while trading and learning from outperformers. However, chasing asset classes, strategies, managers, and funds, based on current strong performance, is another blunder. Who knows what led to this robust performance. It’s also possible that a particular cycle is nearing its end. It’s also possible that the asset class is now attracting dumb money, while smart money has quietly moved out. 

Image Source: Shutterstock

Risk can’t be ignored

 

A good investor and trader should never lose the sight of the risk. He is always averse of risk-aversion. Your plan should mention your risk-aversion capacity. All investment instruments have risks of varying degrees associated with them. Experts advise to never invest more than you can afford to lose. The investors with low risk-taking capacity could focus more on the blue-chip stocks and maintain distance from volatile growth and startup companies’ shares.

 

READ MORE: How is 2021 panning out for BNPL space?

 

Don’t blindly follow mechanical systems

 

With the advancement in technology, most investors and traders have adopted online trading platforms to guide them in research, and fundamental and technical analysis. It helps them to improve their strategies. However, relying too much on machines is not appreciated much by the experts and stock market veterans. Instead, you must fully understand and depend on your capabilities while making the final decision. Blindly following mechanical systems while executing trades means that you are unsure about what you are doing.

 

Not restricting losses with stop-loss

 

It’s always advised to use stop-loss orders since they help limit losses amid an adverse movement in the stock markets. Stop-loss orders execute automatically once the defined parameters are met, and save you from further losses. Even as there is a risk of a stop-loss order on long positions getting executed below the specified levels, should the security suddenly gap lower. Still, the benefits of the stop-loss orders exceed the risk of stopping at an undecided price.

 

READ MORE: Five Dividend stocks from Resource industry

 

 


Disclaimer
The website https://kalkinemedia.com/au is a service of Kalkine Media Pty. Ltd. (Kalkine Media) A.C.N. 629 651 672. The principal purpose of the content on this website is to provide factual information only and does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) or engage in any investment activity under discussion. We are neither licensed nor qualified to provide investment advice through this platform. In providing you with the content on this website, we have not considered your objectives, financial situation or needs. You should make your own enquiries and obtain your own independent advice prior to making any financial decisions.
Some of the images that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed on this website unless stated otherwise. The images that may be used on this website are taken from various sources on the web and are believed to be in public domain. We have used reasonable efforts to accredit the source (public domain/CC0 status) to where it was found and indicated it below the image. The information provided on the website is in good faith, however Kalkine Media does not make any representation or warranty regarding the content, accuracy, or use of the content on the website.

 

   
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK