A big part of my job as a trading mentor is to counsel new traders.
Newbies are the most sensitive to the market volatility and insane price action we all face.
Without a lot of training, practice, and education, the Wild West of trading can be really scary…
Trust me, I’ve been there!
I always talk about my 9:45 am Rule, which every new trader should follow…
During a recent Premarket Prep discussion, I said that new traders should trade zero to three times a day—and that’s it!
That seems extreme but overtrading can blow up your account and quickly end your journey to trading success.
Because if you obliterate your account, you can’t come back tomorrow and fight another day.
And if you can’t trade another day, you can’t grow your capital to eventually take advantage of the bigger and better opportunities waiting for you.
Besides overtrading, there are several mistakes new traders tend to make…
I’ve narrowed it down to the most common ones and will explain how to avoid making them.
Okay, let’s dive into the top five errors new traders make…
Not only can these derail your success, but they can also be costly, so I’m going to teach you what not to do.
Table of Contents
#1 Trading the Wrong Stocks
Many of my newer students will ask me about stocks with very little volume…
“What about illiquid stock XYZ?”
My answer? Stay away!
I don’t care if the stock has the best news in the world or great revenue projections. If it doesn’t have volume, it’s a trap.
For low-priced stocks, like in the $1 to $10 range, you should look for at least a million shares traded daily.
If the stock isn’t hitting that minimum, it’s illiquid, and you’ll have a lot of trouble getting out of the trade if it moves against you…
And, kaboom! There goes your account.
Here’s what to do instead:
Focus on stocks that have run in the past. History repeats itself in momentum trading.
So if you see a past runner on the move again and it has good volume, your trade will have a better chance of success.
#2 Not Having a Plan
Yes, I do talk about this a lot, but not having a plan is a big mistake.
And it bears repeating because but you’d be shocked at how often I see traders winging it.
You need to answer these questions:
- Why am I buying this stock?
- What’s the chart telling me?
- What’s the news or catalyst?
You should have as many factors in your favor as possible.
A random trade with one flimsy reason, like it’s “up big,” isn’t good enough.
Plan your trade. Prepare for it. Stick to it. It’s the only way to stay consistent.
#4 Letting Losses Run
This one might be the most dangerous mistake in the list…
The beauty of low-priced stocks is that they move big, but that sword cuts both ways. If you don’t cut your losses, they’ll pile up fast.
For example, If you lose $300, you must make $300 just to get back to even.
But what if you let that loss balloon to $1,000? Or $2,000? The hole gets deeper, and the climb back gets harder.
So do this instead: Set a stop loss.
Yes, that’s another thing I harp on constantly, but it’s absolutely necessary for every trader, new and experienced.
Step your stop loss price before you make the trade, and then stick to it if the stock goes in the wrong direction.
Then you can regroup, move on, and live to trade another day.
#4 Overtrading
This happens when things go wrong. You have a rough trading session, and instead of sticking to your strategy, you start forcing trades, trying to dig yourself out of the hole.
The fix? As I said in my Premarket Prep session, new traders should make no more than three trades a day.
And when things aren’t going well, that’s the time to really stick to your guns and avoid overtrading.
When you start making a million frenzied trades just to make things right, you usually compound the problem and make it worse.
#5 Not Having Good Quality Tools
I’m gonna tell it to you straight up…
Don’t be cheap.
We all love a deal, but trying to piece together a trading setup with free or lower-cost tools is a setup for failure.
Delayed data? Missing news? Outdated charts? Not a good idea.
Every trader looking to succeed should have a platform with real-time data, charting, stock screening, technical indicators, and more…
My top pick is StocksToTrade. It covers all your bases and includes everything you need to avoid making the mistakes I described above.
Right now, you can get two weeks of both the STT platform and our news service, Breaking News Chat, for $17.
Grab your 14-day StocksToTrade + Breaking News Chat trial today for only $17!
My Final Thoughts…
Write these five mistakes down. Study them.
And If you’ve made them before, that’s perfectly fine! Learn from them and improve.
In trading lingo, “you either earn or you learn.”
If a trade goes sideways, figure out what went wrong and adjust. And hey, you learned!
And if the trade is a win… fantastic! You earned!
For more advice and strategies, join our StocksToTrade community.
We have tons of free live webinars.
They run all day and offer trading tips and tricks, info on our Oracle trading system, and other valuable training.
And for additional trading mentorship, stock ideas, and more, subscribe to my StocksToTrade Advisory service.
Every STT Advisory member gets a monthly newsletter with a list of my top picks, three weekly videos with my watchlists, bonus reports, and more.
Sign up for StocksToTrade Advisory right here!
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade