Biggest Mistakes New Traders Make When Investing at Home
For new investors starting to learn how to invest from home there may be many new challenges ahead that the individual may be unaware how to face. This post is going to look at some of the biggest mistakes that new traders make when starting to invest from home. Now when I say trading from home I am referring to everyone who is learning how to invest on their own as retail investors.
Not having worked for a large investment bank or having formal investment education can sometimes be a determent to the pace at which individuals portfolios can grow. On the plus side being able to directly manage your own finances has incredible benefits.
Use this guide to help you answer some questions on your journey to learning how to invest. As your start to learn how to actively trade stocks, options, FOREX, futures, cryptocurrency and more its important that you start with a foundation of education from experienced professionals who can help guide you on your learning. We invite you to leave any questions down below on obstacles that you could be facing during your experiencing of learning how to trade.
Trading positions too large and too often
When people first start off they often have unrealistic expectation on what kind of profits they should be making starting off. Many individuals come into the market and place an arbitrary goal of making for example $1 Million dollars in an incredible short period of time. Then after falling short of their unrealistic goal they turn their back to the market with the best case scenario being loosing minimal capitol. On the other side there are often trader who try to force their large earnings.
They believe that exposing their account to extreme risk by over leveraging their money is they key to their quick riches. Trading a position too large can potentially lead in complete loss of position. Depending on the type of investing and level of risk associated with the asset class one poor trade has the potential to completely wipe out and account. Its important that trades are not over leveraged. Having leverage means that your funds are backed by the brokers funds to allow you enter into positions that would potentially result in complete loss of account value.
As we work towards becoming full times investors who are able to consistently earn profits from the market on a weekly basis its important that we focus on increasing our odds of success. The goal is to play the game as long as possible and to have your profits exceed your losses. Trading takes consistency and patience. It is important to not start trading with the same mindset that one would have while entering a casino. Investors are not gamblers. They take strategic analytic trades that have managed risks associated with the investment.
Not practicing before going to the major leagues
When people first start to trade one of the first few questions that they will ask is “How much money do I need to get started”. This is all wrong. Getting started with this kind of mindset is guaranteed to set yourself up for failure. When you have that mindset you are essential saying okay what ever money I put aside is money that I have no issues what so ever loosing. Often times people choose to invest too much money in the beginning and due to poor management end up loosing a large portion of their position in the first few weeks on simple mistakes.
When trading it is important to go for percentage movement and not dollar value gains. If for example I am trading with only $100 investment and my goal is to earn 20% on my money then I will only earn about $20. Now considering that 20% gains is outstanding that is something to celebrate. You may be thinking, “It’s just $20 no big deal” but the concept is the skills that are being developed. Over time as your account starts to grow consecutively then making 20% on say a total account value of $100,000 may sound a bit more attractive.
This is way its important to start small and possible even start with a paper trading account if you don’t have capitol that you are able to risk. This will help you start to develop the discipline of trading small and developing consistency.
Image for example a NBA All-Star basketball player practicing over 10,000 free throw shots. Then once it comes game time the shots are not as easy although because of the hours of practice and repetition the skills have been developed to where now shots can be executed with incredible accuracy. The same concept applies with investing.
Trouble of Cutting Losses Too Early and Letting Looser Run
Mindset is a large part of the challenges and benefits of becoming an independent investor. Being your own boss and also being a great own employee is the balance that is essential to creating success in the market. One must be able to have the discipline of the employee to study, and do the work. The employee must take the time to work on the skills that will create revenue for the organization. The Boss must guide and correct actions. As the boss its important that you review past performances and identify potential areas of opportunity and strong points. These help determine what items need to be worked on to enhance the success of the organization.
As the conversation between the two roles occurs subconsciously one part where it does come out into the market is when individuals are forced to decide to how to close a trade. When trades start to turn positive investors often run to collect some gains and dance in their success to bathe themselves in great feeling of pride and confidence. When the trades start to turn against their bias they hold on to the trades in hopes of there being a recovery. Being certain that the market is just wrong and that the price will rise back again in favor your the biased opinion of the individual.
The mind is a powerful thing and can often lead investors towards a path of trusting in ego over factual information. Do not allow your losers to run your account dry and allow your winning trades to mature properly. Your worked hard for your trades and its important you get the full value out of your analysis.
Struggle of Not Having a Reliable Mentor
As athletes start to transition from rookie teams to more professional teams many will travel around the country in search for the perfect team. On the list of criteria that must be satisfied before making a decision one of the key factors that athletes will take into consideration is the coach. Having a great mentor to be able to guide you on your journey is essential. It can help save you time by not having to make so many mistakes. Having a mentor is vital towards not only correcting mistakes but also providing insight and suggestions that will help exponetially expedite the learning process.
It is scientifically proven that individuals who enroll in an academy and or find a reliable mentor in a specific skill or craft that they are looking to learn is 80% more likely to succeed as compared to those who do not find active mentorship. The same rules apply for a skill such as actively investing. One could begin to embark on the journey on their own trading the market blindly and learning from their own mistakes as they go. They would have a low probability of success as there will be many obstacles in the way that that individual may not be aware how to face.
The next step would be to read literature and watch videos that provide an education. These sources are great for learning concepts and tools although depending on the time of recording most of the information can be outdated and no longer apply to today’s market conditions. With a live mentor one can be able to get advise on how to correct mistakes. A mentor can help guide and increase the rate of progress by facilitation a system of education that will be most beneficial to the individual. Most importantly mentors can answers questions in the moment. Having live sessions with coaches and mentors is the best way to get answers immediately and get the most out of your trading experience.
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