I thought penny stock trading was one of the easiest ways to make money online. I remember when I made my first profit, which was not even a significant number, I was ecstatic about it.
But once the reality hit me, it did hit me pretty hard. It hit me so hard that I had to stop trading for awhile before I could restart all over again.
One thing I realized was that I was making too many mistakes that have caused many traders to lose big before. Since I did not take any time to educate myself about what I should expect from the market, I sure learned it the hard way.
To help you avoid this heartache, I’ve decided to write this post and share with you these following 15 Mistakes to avoid in stock trading.
I hope you can learn from my experience, hopefully you’ll not be one of those unfortunate stock’s investors. Let’s start with the number one of these 15 mistakes to avoid in stock trading.
1- Start trading early in the morning
When the market opens is when stocks prices are more volatile. All the factors that can affect a stock’s volume and its price usually take place right after the opening bell.
For a an inexperienced trader like I was, starting trading right after the market is open is a big risk that was being taking.
The quote states “The early bird catches the worm.” In this case it’s the other way around if you’re not someone who has learned the patterns and who knows what you’re doing.
Being a winner while you keep starting with your trades in the first 15 minutes of the market requires something special. Not only you’ll have to be in the game for a long time, you’ll also have to put in practice the techniques you’ve acquired throughout those years.
If that sounds like you, then there should be no reason to not start with your trades as soon as the bell rings. But if you know that you’re not ready, if you know that you’re no where near of being an experienced trader, don’t do it. Save yourself from this pain.
2- Buying pumps and dumps with no plan in place
What are pumps and dumps? They’re stocks that are being manipulated by con-artists as a way for them to make lots of profits. What makes this so bad is the fact that it’s an illegal action which is punishable by law.
Gregg R. Mulholland was a penny stock con-artist who got arrested last year during a flight layover. He’s a citizen of both the US and Canada. He was traveling from Canada to Mexico, but his flight stopped in Phoenix. Unluckily for him that was his time to get face to face with F.B.I.
Although those con-artists know the consequences of pumping and dumping penny stocks, the result given by their actions cause them to be careless. However, there are many penny stock traders like you and I out there who are very smart, they’re taking advantage of those pumps and dumps to make their own profits legitimately.
As I have been pressing on before, or if you’ve been reading my earlier posts you may have already known how much importance I give to education.
There’s a large number of stock investors who has become accustomed to trading pumps and dumps stocks and make lots of profit from them.
It’s not easy but it’s very doable with the right approach and plans. To do that successfully you’ll have to think like the con-artists. Not that you’re being involved in their dirty work, but you’ll have to put yourself in their position and find out when is the best time to buy shares and sell them.
3- Using your bills money to trade
Our third mistake from this list of these 15 mistakes to avoid in stock trading is when you use the money you were supposed to pay your bills with to trade penny stocks.
It may sound unbelievable to you, but believe me it does happen. I know some people who did just that thinking that they can make this money become more.
I hope you’re not one of those who make this terrible mistake. That’s something you should never do, trying to use your bills money thinking that you can make this money become more is a crazy idea. There’s nothing that can predict 100% that you’ll make something out of your trades.
We may utilize many signals, we may read several articles about a stock to pinpoint its next move. But in reality we could never perfectly predict its outcome.
For you to take a fund you were going to pay your bills to invest in stock is a no, no. You may be lucky and make some money from your trades, at the same time it may be the opposite.
Penny stock trading is too fragile to take that chance. If you’re going to trade, this money should not be some cash that you’ll need to do something else later.
I’d not even encourage you to trade with your saving. Many traders have done it before and become rich from this idea, but there are lots of them out there who you don’t even hear about, who have flushed their saving down the drain in penny stock trading.
4- Paying full service brokerage for penny stocks
To trade stocks online you’ll need a brokerage account. Though it’s very simple to choose a broker, you do have to know which one fits you the best.
There many characteristics or factors that you’ll have to look into when choosing a broker to start trading stocks. Most importantly, you’ll have to know whether you want to go with a full-service brokerage account or a discounted one.
What are their differences? A full-service brokerage account gives you more feature to work with as compared to a discounted one. Some of them will even make their research data available to you in case you’d like to use them.
According to Investopedia,
A full-service broker is a licensed financial broker-dealer firm that provides a large variety of services to its clients, including research and advice, retirement planning, tax tips, and much more.
As penny stock traders we don’t need to have a full-service brokerage as our broker. It’ll cost you more and you won’t even take advantage of all the information they’d have available to you.
Anyone who has a full-time broker to trade penny stocks only is making a mistake. If you’re doing so you might want to look back over trading strategies and see if you’re really in need of it. It’s one of the mistakes to avoid in stock trading which can actually save you a lots.
You should keep in mind that not all brokers will let you trade penny stocks or will let you trade them without an additional charge. Some would have a cap on the amount of shares you can buy in one day, while others would force you not to buy more than their set number of penny stocks you can buy per day.
These are things you’d have to look for when you picking your brokerage. Fortunately, there are tons of them to choose from. You shouldn’t have any problem find one that fits your trading plans.
5- Buying stocks after a newsletter has been released
95% of websites that are sending out news for companies in the stock market are being benefited in a way or another. Only 5% of them are doing it in good heart.
Could you trust information from those 95% percent of websites? You definitely can’t and there’s no way what they’re claiming is right either since there’s a conflict of interest.
Oftentimes, we hear day-traders waiting on companies to release news so that they can jump on the wagon. sometimes it works out for them, most of the times it doesn’t.
There’s one thing they’re not watching close enough which may be the reason why they’re using this technique. Stocks price usually increase when their volume increases. If there aren’t enough people following this stock to cause a spike in the volume, you might buy your shares once you see the news and nothing else happens.
That’s the sad part of it.
A spike in the volume is what you’ll want to happen in order to profit from the news. Sadly, many companies will put out news when they don’t really have anything going on. They’d do that to have people like you on board, to have buyers buying their shares.
If you can make profits when that happens, that would be fine, but if you can’t make any profit that’s not good at all. You’re losing your money in the process, not only money for your brokerage fees but you can also lose the money you put into the trade.
6- Not following the media
You may tell yourself if you’re trading penny stocks the media may not be that important to you. I won’t go against you on this, but I must tell you it does help somewhat.
Knowing which sector is doing well can actually helps you to pick better stocks for your trades. Even when I choose not to trade for a day I watch what’s going on in the media. You’ll always need all the help you could find in order to be successful in this market.
Limiting yourself to where you’re getting your information from is not something you should be doing. You have nothing to lose, but you’ll have to manage your time correctly so that you don’t spend too much time in front of your television while you should be in front of your computer.
It’s a very common mistake that you’ll need to stop committing. You’ll see its importance once you start following the media to know what’s going in the markets.
7-Buying one stock with all your money
One of the commonest mistakes to avoid in stock trading and It’s very easy to find yourself making this error.
You have heard of that many times before. “Don’t put all your eggs in one basket.”
Nonetheless, many penny stock investors are doing just that. Some of them are doing that because they don’t have enough money in their portfolio. Some just want to trade this way.
You have to diversify your portfolio if you have enough money in it. Buy shares from different stocks to give you a better chance to make money.
No one will ever be able to predict 100% what’s going to happens after we buys some shares from a company. We can guess the right way many times, but we can’t say we’re buying this stock and it’ll go up to from $2 to $5. We wish it was that simple though.
But it’ll always stay as wishful thinking.
Therefore you should always scatter your money through different stocks, if you lose from this one, hopefully you’ll earn something from that one.
8- Failure to control your risk
Risk control can’t be ignored in penny stock trading. It’s a mistake that’s being made by so many new stock investors. It’s not for no reason we have a feature called stop loss.
When buying shares from any company it’s always best to set up you stop loss. It’s better to lose some of your money than to lose too much of it, or even all of it+.
By setting up a stop loss you give yourself a chance to stop the derailment in case the position is going against your plan.
Ignoring stop loss can quickly lose you money in the stock market. If you did not have the habit of setting up this feature, stop making this mistake and start using it.
It’s a very risky market, I know you’ve heard of that too many times before.
9- Lack of discipline
You have to discipline yourself if you want to make it alive in this market. Knowing when to get some positions and when to let them go could be very crucial to your portfolio.
So many stock investors are many this mistake. They tend to ignore their set plan when things are going their way.
You should always stay with your plan and strategies. Better yet, you should always have a plan before you start investing your money in the stock market.
Ron Wagner states “At time the best action is no action.”
You don’t have to trade every day to make money. You may not find the right stock to trade some days, don’t force yourself into some bad positions just because you want to trade.
Not trading at all some days might be your best choice.
10- Holding onto your bad investments
This one is a very common mistake in stock trading that you’ll need to avoid at all cost. You don’t want to hold onto a stock that gives you the impression you didn’t want to see.
We all make mistakes, but we all don’t accept the loss when we do make those mistakes. When you’re in a position as such, it’s better to just sell the rest of your shares and move on.
I know it’s easier said than done, but believe me on this, it’s better to have this little bit of money left than knowing that you’ve lost it all.
Most importantly, don’t rush to buy another stock after you’ve lost your money. Take your time and analyze the situation to see where you’ve gone wrong.
A lot of times we’re the ones who cause our losses. Check your trading strategies to at least have an idea of what you did wrong. If you can’t find it, don’t panic because it happens to all of us.
Try to stay consistent with your approach, if you usually win when you approach your trades a certain way, then don’t change that. Consistency is important.
11- Take loans to trade
This one sounds crazy to me. I hope you’re not one of those who are making this mistake in stock trading. You should never trade with money you don’t own. Except when you’re trading short, that should be the only exception.
We’re taking chances when we’re trading because there’s no guarantee that our expectation will be a reality. You can’t get someone else’ money to trade stocks in the hope of gaining some profits.
This should not be done at all.
12- Lack of knowledge about the market
Education is one of the most important aspects in stock trading. Having spent your time teaching yourself could take you a long way.
To know your stuff, you’ll have to put some dedicated time apart to do so. Don’t rush into the market thinking that you’ll start making money like you may have heard from others.
Most of them have lost so much money before they start making money. Good thing for you, you’re on the right path since you’re reading this blog post.
That tells me you’re looking to make yourself better, you’re looking to diminish your mistakes and get better at it. That’s the right way to go.
There’re many penny stock investors who are making millions from trading penny stocks only. Most of those stories may not tell you how hard it was for those investors to hit their first million.
I think it was not easy at all for them. They’ve put some hard work into it, the hard work paid off. That’s exactly how they did and you shouldn’t let anyone tells you otherwise.
13- Lack of commitment
If you know you won’t have time to stay and watch what’s going on with your shares it’d be better if you don’t trade for that day. I know you can set whatever you want to happen with your positions, as far as selling them once they hit a milestone or a minimum deficit.
However, you can hate yourself if your stock goes very high and you sell too early while you were not in front of your PC. Lack of commitment is bad for us stock traders, especially penny stocks traders.
We have to be patient and be very committed in order to be successful in penny stock trading. If it was easy I don’t think you and I would have been able or be fortunate enough to be able to buy shares.
It would’ve been set apart for those who are classified as being higher than us. It’s hard, but we can make good money from it if we play our cards right.
14- Unrealistic expectations
Unrealistic expectations can really hurt your portfolio. When buying stocks we usually have in mind where we would like the price to go up or down to.
If you’re trading long you’ll want the price to go up after you’ve got your shares, contrary if you’re trading short you’ll want the opposite.
The problem that may arise is when you set your expectation to high (trading long), or too low (trading short). This can make you lose on some profits if you were waiting for a higher milestone to get your profits.
Always have some realistic expectations!
15- Uncontrolled emotion
Many stock investors let their emotion get in their way when they’re trading. It’s something that can be controlled, but you’ll have to be willing to accomplish that.
Although it’s very common, in fact if it wasn’t common it would not be in this post. There are ways that can help you to trade with no emotion.
Uncontrolled emotions can break you in term of stock trading. If you can control that I guarantee you the change would be immense through your results.
I have compiled this list of 15 common mistakes to avoid in stock trading. If you’re reading this conclusion I’m assuming that you’ve read the whole post.
This list was created with traders like you in mind as a way to help you not to make those costly mistakes. As hard as it already is to trade penny stocks successfully, we can’t afford to commit any mistake that can hurt us.
I hope this post was very helpful to you. Please don’t forget to share it with your colleagues in the social media platforms.
As always, trade smart!