Top Ten Do NOTS

Most of the time when you read trading strategies they tell you the types of things you should do in order to make money in the markets.

Not many (if any) tell you what NOT TO DO!

So here’s our list of the ten most frequent things which lead to mistakes, and ultimately losses. Ignore the top ten do nots at your peril!

1. DON’T risk more than 7% – 8% in any one trade. It’s better to lose several percent and be in a position to enter again later than to get caught in. Remember, if you get stopped out, and there is nothing fundamentally wrong with the company, then it should come back up again from an even lower point, making you even bigger profits, and wiping out any loss you were carrying.

2. DON’T neglect to set stops. If you do not set stops (preferably automated) then I can almost guarantee you will, at some point, find yourself holding onto a loss greater than 8%, perhaps a lot greater.

3. DON’T ignore your stops. It has been known to happen if you do not use automated stops. You set a mental stop loss but when the time comes you convince yourself the stock is just temporarily dipping and you do not sell.

4. DON’T hold on to a loss. If you do find yourself holding a loss then consider selling anyway. It’s better to use the money that’s left to trade with other stocks than to leave it as ‘dead’ money while you wait for the price to come back up.

5. DON’T average down. Averaging down means you buy more and more of a falling stock to bring your ‘average’ buy price down. If you are unlucky to be buying up a company which has good reason to be dropping then you may end up averaging down to nothing.

6. DON’T bottom fish. A popular strategy is to look for stocks which you hear are grossly undervalued. This can be profitable if there turns out to be nothing wrong, but companies don’t generally languish in the doldrums without reason.

7. DON’T try to catch a falling knife. Stocks in free fall provide a great buying opportunity if the stock can eventually recover. The ‘Ten Steps To Profitable Trading’ strategy demands you get bought in while the stock is coming back up. Do not try to guess a bottom before it happens. Let the stock prove to you it has already bottomed.

8. DON’T be influenced by hype and market noise. Always remind yourself that if the majority are scrambling to buy a stock then the smart money is selling to them. Conversely, if the majority are panic selling then the smart money may be preparing to buy.

9. DON’T fall in love with your stock. We are traders, not investors. We want to make money from the price movements. We don’t care what the company is or what it does apart from the fact that we want to trade with well known companies with good track records and good charts.

10. DON’T expect to win on every trade. You won’t, but if you follow the ‘Ten Steps To Profitable Trading’ then you will have a very good chance of profiting from a lot more winning trades than losing trades.

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