Guest Writer Author Pam Johnson is a financial professional who trades on the Wall Street Stock Exchange daily. She obtained her degree from one of the Best Master’s in Finance Online programs in the country.
Trading too Often
Many people make the mistake of trading too often. Of course a trader wants to trade, but sometimes, it is best to let a winning stock ride, as it will often continue on that path. This is due to the momentum of other traders pushing the stock higher. The other negative aspect of trading too often is that commissions from brokers can add up, especially to the trader that is just starting up.
Falling in Love with Your Choice
Never fall in love with a company or a stock. As a trader, stocks should solely be an instrument to make money, whether it is held for 5 minutes, 5 hours or 5 days. There are a lot of great companies with great ideas, but as a trader, none of that matters. The next thing that matters is the next tick of the stock.
Many traders and long term investors will average down. That is, if they bought a stock that has now dropped in price, they will buy more of the stock, in hopes of making their money back. This can sometimes be okay for a long term strategy, but as a trader it is a horrible idea, as putting more money into losers can cost a trader dearly- known as ” trying to catch a falling knife”.
Holding Too Long
Holding a stock too long can be costly in two ways. Holding too long can hold up funds that would otherwise be used to make other trades. It also goes against the nature of trading, the longer a trader holds, the more likely that something will go bad. Some think a trader should never be holding stocks long term – on the other hand Warren Buffett does not describe himself as a trader.
Eggs in One Basket
It can be tempting to put all, or a lot of your money in one stock. As tempting as it may be, any stock at any time can drop instantly, not only due to market conditions, but fraud, or unfavorable news.
Stock trading can be lucrative, and what separates the winners from the losers is very fine. The great thing is that almost everyone can be successful if they do it properly. It is more important to be strong psychologically, rather than be good with math or numbers. In the end, your failure or success will certainly be due to your decisions in these matters in addition to your knowledge of financial statements.