Trading Mistakes You Must Avoid!

| January 4, 2016

Three Trading Mistakes You Must Avoid…

With commodities and the companies producing them falling on hard times this past year, it’s the perfect time to cover a few important investing/trading concepts.

After all, given the current state of the commodity markets, it’s easy to get caught in a situation that can wipe out a large chunk of your capital.

To be clear, traders of any ability level can get stuck in a bad situation if they let their guard down.  But the mistakes below are most commonly made by amateur traders and investors with unrealistic goals and/or poor trading plans.

Let’s get to it…

Holding Big Losers

This one’s at the top of the list because it’s the most common mistake.  And with the vast majority of energy stocks down in the dumps right now, there’s likely quite a few investors sitting on enormous losses.

Of course, it’s best to avoid this situation in the first place.  To do that, always enter a new position with a firm price in mind where you’ll exit the trade to conserve your trading capital.

Your success as an investor/trader depends on how disciplined you are in following this rule.

What do you do if you find yourself sitting on a stock with huge losses?

It’s tough to do, but cutting the position from your portfolio is always the best course of action.  While it’s possible you miss out on an eventual recovery in the holding, you waste precious time holding a stock that nobody else wants, or worse, people are selling.

The worst case scenario is the company your sitting on goes bankrupt.  Unfortunately, this could become a common trend in the oil exploration industry in coming months.

It’s much better to focus your remaining capital on stocks/industries that people are buying.  You can tell that if they are in a technical uptrend.

Buying Lottery Tickets

Let’s face it.  The thought of getting rich quick is a common goal of amateur investors.  One of the most popular ways to achieve this goal is to buy a boatload of an extremely cheap stock ($1 or less) and watch it skyrocket to higher prices.  Fact is, a stock can double from $0.50 to $1.00 faster than a stock can double from $50 to $100.

But getting rich off cheap stocks is lot easier said than done…

You have to remember that cheap stocks are priced that way for a reason.  They most likely have highly uncertain business fundamentals that are keeping astute investors at bay.

If you can’t withstand the temptation of cheap stocks, make sure the underlying business fundamentals are headed in the right direction- growing revenues and profits, along with a safe balance sheet.

Picking Tops And Bottoms

Isn’t it nice to buy a stock or ETF at the exact bottom and sell right at the top?

Of course, it is…

But it’s virtually impossible to do it consistently.

Amateur investors waste enormous amounts of time on this hopeless endeavor.  Fact is, if you happened to catch a stock at the exact bottom and sold it precisely at the top, it was due to pure luck.

Instead of chasing this common pipe dream, focus on trends.  If you want to go long, find something in an established uptrend and buy into a pullback.  If shorting is your thing, find something already in a downtrend and sell into rallies.

While the three mistakes above are common, they’re not the only errors traders typically make…

Check out this article for a more in depth look at recurring trading errors.

Folks, successful trading isn’t an easy process.  It takes time and plenty of persistence.

But if you avoid the three common mistakes above, you’ll be that much closer to success!

Until Next Time,

Justin Bennett
Commodity Trading Research

BIO:  Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com.  With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them.  Sign up for our free reports and commodity newsletter at http://commoditytradingresearch.com/free-sign-up.

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Category: Stocks

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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