9 deadly business mistakes!
The following is a list of nine things you want to avoid at all costs. Any one of them can literally destroy your financial dreams and goals.
1. Trade money you cannot afford to lose.
One of the biggest obstacles to successful trading is using money that you really can’t afford to lose. Examples of this would be the money that is supposed to be used to pay your child’s mortgage, bills, or college tuition. This is sometimes called “scared money trading” and there is a very good reason for it. Ultimately what happens is that when someone knows in the back of their mind that they are risking the rent money, they change it out of fear and emotion versus logic and emotionless.
If you find yourself in this situation, I recommend that you stop trading until you earn enough to enter an account that you can really afford to lose without causing major financial setbacks. You can start with as little as $ 2000 and trade stocks below $ 30.
2. The need to be “safe.”
We all have a need to make sure that the exchange we want to do is a good one. That is why we look for signs that give us a confirmation to enter. This can come in a number of forms, for example … Tune in to CNBC or the Wall Street Journal to give us news that our stocks are on the move or wait an extra couple of days to make sure the stocks are really flying and we don’t have a false breakout. . Other traders will get opinions from friends, family, or brokers. Others will wait for ten technical indicators to line up and give the “green light.”
This is all fine up to a point, however the big mistake to avoid is taking so long that you let the trade take off without you. Interestingly, what ends up happening as a result of waiting too long is that it actually increases your risk. This is because as a stock goes higher and higher, fewer buyers are left in the market and it may fall until more buyers intervene. It is like a game of musical chairs; eventually someone is trapped without a chair.
Traders who wait and wait and wait to make sure they are safer are usually the ones who buy the top tick just before the stock is depleted. They then punished themselves thinking they had chosen the wrong action. Most likely it has nothing to do with your selection, just a bad timing.
The thing to keep in mind is that there cannot be absolute certainty in a given trade. All we can do is take a very polite risk along with a leap of faith!
3. Spend the winnings before you get them.
Nothing is more exciting than getting into a trade that takes off and puts you in a highly profitable situation. However, this can cause major problems, because this type of trading puts you in a state of euphoria and leads you to daydream about the huge profits yet to come. You say “Wow, I’m already up 15% in two days; I’ll go up 50% in a week and I’ll probably double my money in no time!” So the next thing that happens is that you’re deciding on the great new car to buy or maybe telling your boss that he can hit it … well, you get the idea!
The real problem occurs when you get caught up in the dream and the expectations. This makes you unprepared to exit while the market sells and eats your profits because you have convinced yourself of the bottom line and will deny the reality of the situation.
The simple remedy for this is knowing where and how you will make a profit once you enter the trade. Also, keep in mind that the market will only go up as long as it wants and not as high as you think it should go up.
4. Form an opinion.
I’m here to tell you that the market doesn’t give a damn about you or your opinions. Even if they are based on painstaking research or a “Wall Street guru,” it doesn’t matter!
Perhaps your opinion about the direction of the market in the long term is correct, but that does not mean that in the short term things cannot move against you. Remember there are tens of thousands of merchants who have an opinion too. It is all these different opinions that can cause large fluctuations in price on any given day or week, regardless of your perspective.
5. Three 4-letter words that will kill you! HOPE — WISH — PRAY
If you ever find yourself doing one or more of the above while on a trade, you’re in big trouble! As I said, the market doesn’t give a damn. All the hope, desire and prayer in the world is not going to turn a losing trade into a winning one.
When you’re wrong, use a simple 4-letter word to correct the situation: SELL!
6. Not sticking to your plan
A major source of trouble arises when a trader begins to deviate from his strategy. Perhaps for one week they will operate according to one set of rules and the next they will use something entirely different.
This flight through the seat of the pants always ends up backfiring. This is because the merchant can never be sure what works and what doesn’t.
You should never deviate from your methodology once you start. As long as it is statistically good, there is absolutely no reason to change it. The way to earn money from it is to trade it over and over again to take advantage of it.
One thing you should also keep in mind is that a trader is more vulnerable to changing focus after some losses. Therefore, pay special attention at these times.
7. Not knowing how to get out of a losing trade.
It’s amazing how many people I’ve talked to who don’t have a clear escape plan out of a bad deal. Once again they wait, pray, wish and rationalize their position. As I keep saying the market doesn’t care what you think. It does what it does and when you make a mistake, you make a mistake!
The easiest way to prevent a bad trade from being really bad is to determine before you go in where it will come out. You can use a dollar amount or at some target point, such as the low of the previous 15 minute bar.
*** Make sure you do not have “stunned deer syndrome in headlights”. This is where you see stocks fall to your stop loss point, but you can’t take action. Maybe this is due to fear or disbelief that you are wrong, but unless you get out as soon as possible, you could end up in big financial trouble!
8. Have an ego.
I have seen several people get into the trading game who were very successful at other trading ventures. Because of this, they had a pretty big ego and thought they couldn’t fail. Their egos became their downfall because they couldn’t except they were wrong and refused to get out of bad deals.
Again, whoever or wherever it comes from is not concerned with the markets. All the charm, the power of persuasion, the number of diplomas on the wall, or the business acumen won’t change the market when you’re wrong.
9. Fall in love with a stock or trade.
Let me give you an example of what I mean. In the spring of 1999, EFAX was a really hot stock. I waited to buy it in a dip and did it for $ 19 / share. He started moving hard and life was great!
However, after a while it started to return to my point of entry and then under it. Here is the problem. For whatever reason, I really liked EFAX and stuck with it. In the end, I couldn’t let go even though I knew I should. I justified and rationalized why my dear friend should recover, but he never did. I finally had to break up my love affair when the stock hit $ 9. (Yikes!)
The moral of this story is never to fall in love, much less marry any race. It can cost you dearly!
I cannot stress enough the importance of the principles in this article. Whether you are a position trader, swing trader, or intraday trader, these principles can help you avoid some costly and painful financial mistakes. As they say, smart people learn from their mistakes and brilliant people learn from the mistakes of others.