Staying Away from Common Stock Trading Errors

Having a plan will help you to minimize or even eliminate any trading errors. Guesswork is where most trading errors come into play.

Successful stock trading requires discipline, dedication, adequate working capital, and a bulletproof stock trading plan. Most of the stock trading errors that are made by beginners are typically errors in preparation.

Here is a list of some other common stock trading errors:

By avoiding common errors and sidestepping pitfalls you can accelerate your growth as a stock trader. While some of these errors may seem still wise and ridiculously obvious to keep them in mind as you go about your day-to-day trading activities.

Inadequate working capital:

Trying to make $100,000 a year starting with $100 doesn’t require a great stock trading system, it requires a miracle! Just as an athlete’s body requires a proper fuel for peak performance so your account requires the fuel of trading capital.

Many people believe that because they have achieved a level of success in another area of endeavor or in another business that they will be successful in stock trading. Stock trading requires actions which may seem counterintuitive. The smartest thing to do is to learn the ins and outs of trading stock as the skills and techniques learned are very specific to the stock market.

Unrealistic hopes:

This is one of the most common stock trading errors that there is. Beginning traders often believe the hyped up advertising of many of the commercially available trading products in the market place today. The outlandish claims of thousands of percent return per month or zero drawdown are very tempting to those who don’t know any better.

Successful stock trading requires discipline, dedication, adequate working capital, and a bulletproof stock trading plan. Most of the stock trading errors that are made by beginners are typically errors in preparation. Unrealistic expectations– this is one of the most common stock trading errors that there is. The smartest thing to do is to learn the ins and outs of trading stock as the skills and techniques learned are very specific to the stock market.

Fear of losing:

The fear of taking a loss is very common amongst beginning traders. Where successful stock traders differ is that they know well in advance that some trades and some days and some months will simply be more profitable than others.

Inadequate working capital– trying to make $100,000 a year starting with $100 doesn’t require a great stock trading system, it requires a miracle!

Rules for Stock Trading

This piece seeks to discover five rules that successful stock traders have regularly used to improve their chances of being on the winning side of the market. I can not guarantee that following these rules will ensure 100% success when you trade stocks; however, these rules will make it easier for you to maximize profits when you are in the right trade and they’ll help you reduce your losses when you are in a wrong trade.

Stock trading is one of the few businesses in which you can multiply your money, lose money or run into immense debts with a trading decision. Every stock trader loses money on some trades, but the fact that sets successful stock traders apart is that they have more winning trades than losing trades.

1: Invest in Your Education

When investing in your education, you should strive to understand the major factors that move the markets because the stock market is more dynamic than static. You should understand different trading strategies and work with a strategy that fits your risk-taking quotient and your experience.

The first rule and perhaps the most important rule for profitable stock trading is that you MUST invest in your education. I’m not asking you to go back to college or get further qualifications, but nobody can regularly trade stocks profitably without a functional understanding of how the stock market works.

2: Develop an Exit, entry, and escape Strategy

You must be cold and calculating if you want to trade stocks profitably. You should decide on the price at which you’ll be interested in buying the stock and how much of the stock you’ll buy per time (Entry).

You should come with a trading strategy and you must be disciplined enough to stick to your plan. You should also avoid becoming an accidental investor. Accidental investors buy stocks with a trading goal in mind; however, they might fall in love with the stock if it has a winning streak or they might start feeling pity for the company if it has a losing streak; hence, they usually hold on to stocks longer than necessary.

3: Master the Two Sides of the Coin

About 90% of people who enter the stock market usually come with the mindset of buying stocks at low prices and selling them at high prices. You’ll most likely be chasing highs by purchasing stocks in the hopes that their share prices will increase.

The fact remains that the most bullish stock in the market can not consistently maintain a rising streak without the occasional dip, pullback or even a correction. Stocks that are rising might drop as much as 60% of recent gains before they start another ascent. You should not be afraid to short stocks when they are clearly entering a losing streak.

4: Trade Only when You Clear

All stocks provide useful information with the buy and sell signals in their technical indicators. The simplest and probably most important buy/sell signal is the key resistant/support level. You should know how to identify the key support and resistant levels in order to trade stocks for profits when they are going upwards, downwards, or even sideways.

Successful traders go long when a stock triggers a breakout above a key resistance point, they short stocks on a breakdown below a key support level, and they trade stock options when stocks are going sideways. It doesn’t hurt to sit on the cash for a day or two while the choppiness in the stock clears away if you can not read the buy/sell signal clearly.

5: Don’t Buy/Sell Based on Hype

A virtual stock exchange invites traders from all different level of expertise to experiment with stock market using our advance tools including stock alerts, portfolio management.

You should know how to identify the key support and resistant levels in order to trade stocks for profits when they are going upwards, downwards, or even sideways.

Nothing beats doing your due diligence as explained in rule number 1 and entering the trade only after a careful consideration of rule number 2.

As much as I hate to be the proverbial wet blanket, I must tell you that more than half of the tips, info, and expert advice that you’ll read on the Internet or see on the TV about that one stock you must buy today are nothing more than hype.

You must be cold and calculating if you want to trade stocks profitably. You should decide on the price at which you’ll be interested in buying the stock and how much of the stock you’ll buy per time (Entry). Accidental investors buy stocks with a trading goal in mind; however, they might fall in love with the stock if it has a winning streak or they might start feeling pity for the company if it has a losing streak; hence, they usually hold on to stocks longer than necessary.

Investfly|A virtual stock exchange invites traders from all different level of expertise to experiment with stock market using our advance tools including stock alerts, portfolio management, advanced stock screener, automated trading and stock market game.

Explore our virtual stock exchange to enhance your profitable stock trading strategies.

Profitable Stock Trading Rules to Trade

If we get stopped out of a stock, we should not repurchase it for some number of trading days. Jumping back into a stock we were just stopped out of does work once in a while, but probably 90% of the time we get stopped out, the price decline is not over.

1: always use sell stop orders to protect yourself from devastating price declines.

 

2: you can not buy a stock you were stopped out of for 10 trading days.

3: use trailing sell stop orders to secure profits.

In “Profitable Stock Trading – 5 Rules to Trade By” we discussed the first five rules that will help you gain stock market trading success. Here we finish up with the final five rules.

4: when your profit goals for a given trade are met, sell the stock, despite of its presumed long-term prospects.

5: the average daily trading volume for the 10 trading days prior to our buy date should be at least 100,000 shares.

Stock prices fall and rise for one reason only, supply and demand. If too many people want to sell a stock (more sellers than buyers – a large supply), the price goes down. That requires that the stock trades sufficient volume to allow us to execute our transaction without our order causing a major price move against us.

When we examine our stock charts (a stock trading technique, not a rule, thus a discussion for future articles), we’ll pick a price at which we will place a sell stop order as soon as our buy order is executed. Jumping back into a stock we were just stopped out of does work once in a while, but probably 90% of the time we get stopped out, the price decline is not over. If a stock has gone up in price more than expected or is in a parabolic rise, we should cancel our static sell stop order and place trailing sell stop orders to protect from price reversals. Trailing stop orders set a price a certain dollar or percentage amount under the current stock price. The sell stop trigger price increases as the stock price goes up.

If a stock has gone up in price more than expected or is in a parabolic rise, we should cancel our static sell stop order and place trailing sell stop orders to protect from price reversals. The sell stop trigger price increases as the stock price goes up.

Remember, we are trading stocks, not buying and holding them for years. This means we will sell some very good stocks once our profit goals are met, then possibly watch them go higher, maybe even much higher. If we absolutely love a stock and can not stand the thought of not owning it, we can establish a core long-term position then trade an additional amount of shares (our “trading” position), giving us the best of both worlds.

They are not trading techniques, which are in a whole different category and require skill and judgement to effectively buy and sell stocks at the optimal time and price. Stock trading techniques will be discussed in future articles.

Types of Stock Trading

There are three ways you can invest for short terms. You can trade in stocks as position traders, swing traders and day traders.

You can trade in stocks for as fast as a few seconds. You can finish off your trade by the end of the day, or, you can invest for months, years and all through your life. There is no need to ‘wind up’ your business.

Stock trading provides a wide range of opportunities to stock investors to make money. The beauty of stock trading lies in its huge flexibility. You can invest in stock trading as a hobby, a part time business or as a full time source of income.

The time span and the amount of money you invest rely on your personal needs, predilections and financial goals.

You can invest as little an amount as you spend on your lunch in a restaurant, or, you can invest hundreds and thousands of dollars.

1. Position Trading

In position trading, you keep waiting for the fundamental changes to come about that affect the value of your stock. A combination of fundamental and technical analysis can go a long way to help you to evaluate the trading opportunity.

Even if you do not use an analysis tool, you may collect a lot of fundamental information from financial magazines and newspapers about the value of your stock.

Position trading is especially useful for those who want to supplement their income without devoting lots of time in front of the computers. When you feel free, you can study the stock market any time you.

Of all the three trade types, position trading is the longest term trading style. As a position trader, you do not have to sit glued to your monitor like a day trader and keep waiting anxiously what will happen the next moment.

Position trading can be described as a trading style or strategy where you hold an investment position for an extended period of time which may range from days, weeks or months at a time.

2. Swing Trading

Swing traders try to ride the swings in the market. They usually buy fewer stocks and aim at making big profits. Since they buy fewer stocks, they obviously pay less brokerage.

The secret of success in swing trading lies in looking for the changes in the market that are driven more by the sentiments than by some fundamental reasons.

Swing traders normally spend two hours daily in their research. They usually rely on the intraday and daily charts to understand the stock movements.

The basic strategy in swing trading is to buy a strongly trending stock after it has completed its period of consolidation and correction. The strongly trended stocks make fast moves after their correction period is over. The alert swing traders hold the stock for a period of 2 to 7 days and sell it off making a profit of 5 to 25%.

Generally speaking swing trading involves trades that are normally held for a couple of days to a few weeks. Swing traders hold the stocks for shorter periods than the position traders. Swing traders try to earn profits by trading the stock “on the basis of its intra-month or intra-week oscillations between optimism and pessimism.”

They repeat this process over and over again. Swing traders basically try to capture the quick stock moves. When it is in correction mode and sell it as soon as it reaches certain profit level after the correction, you buy a stock.

3. Day Trading

Stock trading offers a variety of opportunities to stock investors to make money. The beauty of stock trading lies in its immense flexibility. You can invest in stock trading as a hobby, a part time business or as a full time source of income.

Day trading is often considered risky. It can become profitable for the serious investors who have learned the tricks of day trading through study and experience.

Day traders buy and sell their stocks from the time the market opens in the morning and sell them away before it closes. They can hold their stock for the next day or even longer if its price is falling.

In position trading, you keep waiting for the fundamental changes to come about that affect the value of your stock. The basic strategy in swing trading is to buy a strongly trending stock after it has completed its period of consolidation and correction.

Fundamentals of Stock Trading

A stock trader has the same objective as a stock investor: to profit from buying and selling stocks or stock-related derivatives like stock options. I include equity mutual funds, ETFs and stock indexes in the stock category.

Most stock traders use technical indicators to guide their timing, or events such as earnings announcements and stock splits. One way stock traders are different is in how long the trader plans to hold their positions: their time horizon.

Day Trading

This demands paying close attention and management of their positions, so usually day trading is a full-time profession. Day trading is often seen as the most risky trading style, and emotional day traders can lose their money quickly. Day trading resources are available in our trader directory.

Swing Trading

Swing trading holds positions from a few days to a few weeks. Swing trading can be done by beginner traders all the way to advanced. Some examples from my past swing trading is playing earnings announcements and stock splits.

Position Trading

Swing and position trading is ideal for people who trade part time. That is why my trading focuses on swing and position trading. We make it even easier by offering trading systems for part-time traders, so you do very little to trade stocks.

Buying undervalued beaten down stocks is a position trading strategy; one we use in the trading systems featured on this site. Position trading systems are usually simpler than day and swing trading systems, and take about 30 minutes a day to implement. My first trading experiences was as a position trader, trading stocks and mutual funds.

I thought my first article here should describe what stock trading is, how it is different than stock investing, and what part of stock trading this blog is focused on. Buying undervalued beaten down stocks is a position trading strategy; one we use in the trading systems featured on this site. Position trading systems are usually simpler than day and swing trading systems, and take about 30 minutes a day to implement. My first trading experiences was as a position trader, trading stocks and mutual funds. That is why my trading focuses on swing and position trading.

International Finance

Become familiar with the various government programs designed to help your company finance its export transactions, and give it the capital to carry out its export operations.

We recommend that you review this information and then contact your local Commercial Service Trade Specialists to discuss how these programs can help you achieve your international sales goals.

Financing

Do you need working capital loans? Does your foreign buyer need financing to buy your products? Do they prefer lease financing? Check out the U.S. Government International Financing Programs.

The U.S. Government offers four different types of financing programs:

To learn more and apply for these programs, please click on the link below each description.

The U.S. Government also provides finance related events and on-line training to further assist in exporting your products and services.

To receive counseling on how the programs listed below can help you achieve your international sales goals, please contact your local Commercial Service International Trade Specialist.

Export Development and Working Capital Financing: Enables U.S. businesses to obtain loans that facilitate the export of goods or services by providing the liquidity needed to accept new business, grow international sales and compete more effectively in the international marketplace.

  • Small Business Administration – Export Working Capital Program: Provides up to $5 million in short-term, transaction-specific working capital loans to U.S. small business exporters. Uses of this financing include: pre-export financing of labor and materials; and post-shipment financing of the accounts receivable generated from transaction-specific overseas sales. Learn more about Export Working Capital and apply…
  • Export-Import Bank – Working Capital Guarantee Program: Provides transaction-specific working capital loans to U.S. exporters, made by commercial lenders and backed by Ex-Im Bank’s guarantee. Uses of this financing include: purchasing finished products for export; paying for raw materials, equipment, supplies, labor and overhead to produce goods and/or provide services for export; covering standby letters of credit serving as bid bonds, performance bonds, or payment guarantees; and financing foreign receivables. Learn more about the Working Capital Guarantee Program and apply…
  • Small Business Administration – Export Express Program: Provides small businesses that have exporting potential, but need funds to cover the initial costs of entering an export market with up to $500,000 in export development financing to buy or produce goods or to provide services for export. The loan proceeds can be used for most business purposes, including expansion, equipment purchases, working capital, inventory or real estate acquisitions. Learn more about the Export Express Program…

Facilities Development Financing: Enables U.S. businesses to acquire, construct, renovate, modernize, improve or expand facilities and equipment to be used in the United States to produce goods or services involved in international trade.

  • Small Business Administration – International Trade Loan Program: Provides U.S. businesses that are preparing to engage in or are already engaged in international trade, or are adversely affected by competition from imports with up to $5 million in financing to upgrade equipment and facilities. Although this loan program can also be used to refinance existing indebtedness that is not structured with reasonable terms and conditions, it cannot be used as working capital. Learn more about International Trade Loans…

Financing for your International Buyers: Enables U.S. businesses to assist their international buyers in locating financing to purchase U.S. goods and services when financing is otherwise not available or there are no economically viable interest rates on terms over one-to-two years. This type of financing is generally used for financing purchases of U.S. capital equipment and services. Financing may also be available for refurbished equipment, software, certain banking and legal fees and certain local costs and expenses.

Investment Project Financing: Enables U.S. businesses to acquire financing for large-scale projects that require large amounts of capital, such as infrastructure, telecommunications, power, water, housing, airports, hotels, high-tech, financial services, and natural resource extraction industries.

Insurance

The U.S. Government offers U.S. companies Insurance and Risk Mitigation policies that cover export transactions and for overseas investments. Coverage includes losses for non-payment, currency inconvertibility, asset expropriation and political violence.

Grants

The U.S. Government provides grants to U.S. firms to conduct feasibility studies on infrastructure projects and to train the foreign business community and government officials on U.S. business practices, regulatory reform and other economic development activities.