Stock market trading is one of the most lucrative ventures in the financial world; however, the reality is only a minority of traders will ever experience consistent success in stocks trading. This sad fact propels us to uncover why most people fail in this industry. And though the reasons are varied and the contributing factors that may lead to a trader’s downfall just as diverse, there are five common pitfalls of stock trading that even seasoned traders commit time and time again.
Emotional About Money
Traders trade to gain profits – that’s a fact. However, a person’s perception of profits and losses plays out a great deal in trading. A person who has a an attachment to money and sees it as a form of “security” or “power” will most certainly react emotionally when a trade goes haywire. Trading is not just about making money; most often than not, it’s about not losing much money on bad trades. Fact is, not every trade will be profitable. A successful trader knows this and tries to get out of the trade with the least losses possible, while an average trader will react to the loss emotionally; and as a result, forfeit opportunities that may have cut his losses.
Not Having Clearly Defined Strategy and Goals
Having a trading strategy and goals is very basic; however, this is a common mistake that gets repeated over and over again. A trader who has vague trading strategy and goals will most lose track of the plan and chase every opportunities that presents itself. And the stock market is a wild jungle of disasters disguised as opportunities that constantly tempts its next unknowing victim.
Trading Based on Opinion
Traders can get lured into thinking that the market will move in a certain direction. And though there are patterns and signals that will tilt the odds in the trader’s favor, there’s no way we can ever accurately forecast the market’s movement. Traders’ opinions will always seem right – until the market proves them wrong and at which point, a trader’s opinion does not matter one bit. That’s why savvy traders know it’s wise to presume nothing and plan for everything.
Revenge Trading
Nobody ever wants to lose. However, the worst traders seem to have a greater aversion to losing. Throwing all caution and common sense to the winds, revenge traders try to recover the loss right away by increasing his share size on his next trades following a losing trade. This move will lead to even greater disaster since trading decisions are based on emotions and ego. Instead of trying to recover losses right away, it’s always best to take a step back, analyze what went wrong, own up to the loss, and learn from the experience going forward.
Looking at the Short-term
Becoming a master at anything takes time. There’s no shortcut to success; and yet, seeing how people will almost always grab the current fad of making money instantly, you would see that people still thinks there’s a “secret” turnkey system to get rich quick. And that’s not just about trading; though it’s just as prevalent. Like everything else in life, becoming successful at trading is a process. It requires hard-core training, persistence, and a constant hard look at your performance. People who are still looking for that “holy grail” of trading, will most certainly not find it; they’ll only burn cash in the process of chasing current fads and trends that promises instant riches.
Patrik Fonce is a trader and writer for QuantShare Trading Software. QuantShare is a trading software for stock, futures and forex traders.