Seasoned traders and investors will all agree that there are some things you just shouldn’t do when investing in the markets.
That’s right – you may know a trader or investor who has made these mistakes and become the “statistic”: a recent study found that over 82% of traders made significant losses and closed their accounts after 9 months. For the long term investors it is slightly better, but that doesn’t account for the thousands of retiree who had to return to work after the 2008 bear market.
That’s why I’ve made a list of 10 major reasons why traders and investors fail in the markets. How can you use this? It’s simple – do the opposite of everything on this list, then click the link at the bottom for even more reasons and things to avoid. When you know what to avoid – you can be far better prepared.
Ready? Here they are!
1: They don’t create a plan. You wouldn’t start a business without a business plan, would you? Then why start trading without a trading plan? List your entry and exit rules, you money management, your goals. All of these things bring you greater success.
2: They don’t use Stop Losses. All of the old traders and investors I know who have traded through crashes and recessions swear by one main thing – a place where they absolutely will get out of the market, also known as a stop loss. Make sure you know yours.
3: They haven’t outlined solid back-tested rules for entering and exiting. If you were forced to jump off a cliff into the ocean, would you look where you were jumping? Of course you would! So don’t jump into the market without looking where you’re going – or creating rules and checking them regularly!
4: They think the market will stay “this way” forever. If there is anything that’s true about the markets, it is they are ever changing. What works today may not work tomorrow, and today’s bull market will become tomorrow’s bear. The market will never “stay this way forever”. Be prepared, and never stop learning.
5: They over-analyze. More commonly known as analysis paralysis, this can happen when you do so much research and get so many conflicting views that you find you can’t actually make a trade. Keep it simple – all the best traders do.
6: They give up too quickly (and don’t let their expectancy work). Many methods will work over the longer term, given a positive expectancy. But some traders or investors get discouraged and give up, right when the market conditions are about to change in their favor.
7: They put too much emphasis on predicting the future. Traders who predict the future find all sorts of reasons to back it up – but when it doesn’t turn out like they planned, sometimes it can be hard to stay objective in making decisions. Take forecasts with a grain of salt.
8: They risk too much on one stock or trade. A classic mistake, this involves either not knowing they are risking too much, or being so over-zealous they bet the farm. It can result in some spectacular gains, but over the long term the result is largely the same – bust!
9: They turn their money over to “experts”. The fact is, even most professional traders are not even right 50% of the time. And a large majority of managed funds don’t even perform as well as their index, let alone out perform it. No one will care as much about your money as you. Get educated.
10: They hound people for tips instead of learning the ropes. How people love tips! Some people will do anything for a “hot tip” in the market. But it’s usually at the expense of actually learning the ropes themselves. And if you buy using someone else’s tip, when do you sell?
For 31 MORE reasons why traders and investors fail visit Dave McLachlan’s free site at www.ASXmarketwatch.com. It could save you!