Small Investors' Common Mistakes And How To Avoid Them
The vast majority of average self-directed small investors and traders lose money. Surveys show that their losing percentage is at least 90%. Do not be a statistic! Avoid these traps and be part of the small slice of winners! Take a look at the services for our subscribers here.
Advertised, Fully Automated, Trading Systems with Consistently Amazing Results
If it seems too good to believe, it is. Trading systems require human judgement and are no more perfect than anything else that people do (our trading system isn't perfect either). Speculating is the root of all investing and trading. "Speculate" comes from the Latin "speculatus" meaning "to view". In other words, we - the small investors and traders - must look at market and fundamental conditions in order to trade. If automation was as efficacious as we are constantly being told, then traders would just put together historically-tested good trading systems, switch them on and watch the money pour in. As anyone who has tried this knows, as time moves on, systems that were good in the past are good no more.
Paying Attention To The News
The stock market, futures market and currency market is controlled by large trading syndicates. Even the smallest market moves are caused by these huge players. Small investors - even when acting in concert - do not have enough power to move the price.
Big players use news events in order to trade. In fact, they are not above "creating" news if there is no "real" news available. They do this because it's the only way that they can trade. They trade such large holdings that when they initiate trades they move the market against themselves if they are not careful. Let's say that a big player wants to unload a large stock position he holds. If he gives the gigantic order to his broker the way small investors do, then as more and more of his holding is sold, price will go down. At the end, he would have sold a big portion of his holding at a bad price. They system they use includes either waiting for good news or thrusting the market up themselves and then waiting for the crowd to jump on the bus. Once this occurs, they start selling into the wave of buying. That way they can get reasonable prices for virtually their entire holdings. Consider this the next time you think that news events will help you to correctly discern future price movements.
Trading Without A Coherent And Complete Trading Strategy
Some small investors - mostly beginners - try to trade by the "seat of their pants". This opens up pandora boxes of fear and greed. Fear and greed affects all traders but trading systems greatly ameliorate powerful urges to do something wrong. Trading systems lay out conditions and procedures for both entering and exiting trades. Sometimes market conditions enter which mandate an exception to trading system edicts. But most of the time, trading systems procedures are followed and serve as bulwarks against fears that trades won't work or hard-to-resist urges to jump into bad trades.
Not Using Protective Stops and Holding On To Losers In The Hope They Will Recover
Letting winners run and quickly getting rid of losers is central to any good trading system. But many small investors do the reverse. When they have a good trade with a small paper profit they immediately become fearful that the market will turn against them - and bail out. On the other hand, losing trades often get much worse because they didn't limit the risk with protective stops. Large losses and small gains adds up to a bad money-losing trading system.
Keeping Protective Stops Too Tight
The correct way to determine where to place a protective stop is to find a price level that would only be reached if the trade is bad. The difference between trade entry and protective stop constitutes the trade's risk. Placing protective stops based only on permissible levels of risk often results in losses when properly placed stops would have resulted in gains.
Small investors represent the majority of investors. The best that small investors can do is to follow what is suggested by the movement of big money. Small investors frequently sell at lows and buy at highs. Small investors make trade decisions that are frequently wrong. Small investors are the majority of investors. The worst that small investors can do is to not follow what is suggested by the movement of big money. Small investors sell at lows and buy at highs. Small investors are frequently wrong in their trading. Small investors can become large investors. Small investors must study the markets. Small investors can succeed. Small investors must resist fear and greed. Some small investors will become large investors. Some small investors will study the markets. A few Small investors will succeed. Good small investors resist fear and greed.