Editor’s Note: My buddy Bryan Bottarelli from Monument Traders Alliance is not just a top-notch trader—he’s also an outstanding teacher. No matter if you’re just starting out or have years of experience, I truly believe Bryan has insights that can benefit you.
In the following piece, Bryan breaks down three common blunders traders often make and offers advice on how to sidestep them.
– James Ogletree, Managing Editor
So here we are, at the start of a new year, captivated by the significant profit potential in today’s markets. The buzz around the “hot sectors” is hard to miss: artificial intelligence, quantum computing, blockchain—the list keeps growing. You hear your friends are making money and naturally, you’re tempted to dive in too.
Yet, the jargon can be intimidating, you might be unclear on the risks, and perhaps you’re doubting your own abilities. This hesitation might have kept you from making that first trade.
But wait—because today we’re going to change all that. I’m going to walk you through the major pitfalls new traders face and how you can steer clear of them. These steps are crucial as you make your entrance into the market.
They’ll guide you on how to ready yourself mentally, emotionally, and financially for a successful trading experience. You’ll soon discover how strategic trading can swing the odds in your favor. By the end, I hope you’ll feel prepared and confident to take advantage of the stock market’s lucrative opportunities.
Let’s jump right in and get started with the first major mistake…
### Trading Mistake No. 1: Jumping in Without Testing the Waters
It would be reckless to hit the road without knowing how to drive. Similarly, putting your hard-earned money on the line without getting familiar with trading can end badly. That’s why I strongly suggest setting up a paper trading account.
This approach offers several benefits: You’ll get used to the process of placing and exiting trades, become comfortable with the trading lingo, and importantly, make your novice mistakes with play money instead of real cash.
Imagine you bought a put option when you meant to buy a call. Oops. Or maybe you sold when you intended to buy—oops again. Perhaps you acted on a March expiration instead of an April one. These are rookie errors it’s better to make during practice, not when actual money is on the line. Investing time now will help you avoid costly mistakes later, leading to greater profits down the road.
At Monument Traders Alliance, we recommend using the ThinkorSwim platform, but most major brokerages offer paper trading accounts. If you’re uncertain, reach out to your brokerage’s customer service. Getting familiar with their help resources is part and parcel of dodging this first mistake!
### Trading Mistake No. 2: Neglecting an Exit Strategy
I can’t stress enough how vital it is to have a clear exit strategy. In trading, you should always be ready to take your profits when the opportunity arises.
In contrast to most games, which have clear end conditions—like Monopoly ending when your opponents are broke or a marathon wrapping up once you hit the finish line—trading on Wall Street is ongoing. It’s up to you to determine when to call it a day, and this is where many go wrong. Failing to define your endpoint often results in holding positions too long, ultimately leading to losses.
Don’t strive to buy at the lowest or sell at the highest. No one has ever been able to consistently time the market so perfectly. Expecting to do so will only lead to frustration. The market has a knack for making you second-guess and doubt yourself.
To avoid this, employ a simple strategy: when in doubt, sell half. If you’re torn between cashing out or holding on, compromise by selling half of your position. This way, you secure some profits while still having the potential to gain more if the stock rises.
Sure, you might not maximize your potential gains, but you also ensure you’re not left empty-handed. It’s the best of both worlds. Remember the wise saying: “Nobody ever went broke taking a profit.”
### Trading Mistake No. 3: Skimping on Quality Research
Finally, the most critical mistake—trading without solid research. Diving into a new venture without thorough information is risky.
Plenty of resources exist for new traders, but not all are reliable. Remember, anyone with a webcam and a trading account can offer advice. If you want to succeed, seek out the best sources.
I’ve been navigating the markets for decades, starting my journey back in 1999 in the Apple Computer trading pit at the Chicago Board Options Exchange. Today, it’s my mission to track every stock, anticipate events, and transform that information into profitable investment suggestions.
### Avoid Those Common Mistakes!
Now that you know the most common pitfalls for new traders, take actions to dodge them. Simplicity is your ally; avoid complicating the market. Aim for consistent strategies instead of chasing every “promising” opportunity that comes your way.
