5 Trading Mistakes to Avoid When Trading Cheap Stocks
One of the great things about cheap stocks or “penny” stocks is that they can move dramatically in a matter of days. Because of this, sharp investors can make a lot of money trading cheap stocks – as long as they avoid some of the worst stock trading mistakes. Here are 5 of the most common:
1. Needing “proof” before you trade
Many traders get tips on cheap stocks from a broker or from a friend. Others spend hours studying charts and technical indicators to figure out a good stock to buy. Still others find juicy tips from a newsletter or stock alert service about hot cheap stocks. All this information can be very useful – if you act before it’s too late.
But wait too long to jump in and you may lose a golden opportunity to get rich. Because as you stall, wondering if you’re making the right decision to buy, the stock moves higher and higher, until…finally, you decide to enter. Right about when everyone else starts selling off.
You shouldn’t wait too long to make a move on a cheap stock that looks promising. Because ehe stock market won’t wait for you!
2. Using money you KNOW you need for other things
The stock market is never “a sure thing”. Things happen – most of them beyond your control. Which means that risking everything on a trade could potentially wipe you out. So trade sensibly. Only play in the market with money that you can afford to lose. Then, if you win – you’re ahead of the game. And if you lose – you had some fun.
The main thing is to never let your emotions take over. Trading the stock market purely on emotion is a fool’s game, and usually a losing one. You can play the cheap stocks with as little as $1,000 or less, depending on the stock price, so only play with what you can afford to lose.
3. Changing your trading plan too quickly
Many inexperienced traders don’t stick to a trading plan long enough to see if it works. They’ll try one plan one week and then do something completely different the next week. Worse, most people will change their plan the minute they encounter losses.
As we mentioned above, sometimes the market changes because of things out of your control. So stick with the strategy you’ve chosen long enough to see if it works. Experienced traders know that losses are part of the game. Don’t let a few bumps in the road blow you off the map.
4. Getting greedy when the going is good
Greed is a human emotion that affects all of us, even the most experienced traders. However, this is a classic example of letting your emotions take over.
Sure, it’s tempting to sit on your stock when you see your buy go up 200% in one day, and anticipate all the money you might make if you continue to hold your position. But doing so can blow your exit strategy – and your profits.
Letting your emotions dictate when you exit a stock can backfire on you quickly. This is why you should always have an exit strategy in place, and stick to it. Determine, in advance, what level of profit you want and the time in which you expect to see it happen. Then execute your plan, regardless of how tempting it is to hang on to a trade “to see what happens”.
In the long run, developing a disciplined trading strategy will save you many sleepless nights. And remember: A good profit is the profit you already have.
5. Not getting out when the going is bad
This is the opposite of #4. Many inexperienced traders do not develop a good exit strategy. Instead, they trade on hope and a prayer. So when their carefully considered turns out to be a dud, they freeze like a deer in headlights.
Realize that no trade is a sure thing, and some of your trades will turn out to be losers, no matter how sure they seem. However, a bad trade can only become a VERY bad trade – if you let it. Whether you use a dollar point or a target point, develop an exit strategy and use it.
Don’t hang on in the hope that the stock will come back tomorrow. Maybe it will; maybe it won’t. But why set yourself up to increase your pain? Cut your losses, and move on to the next trade.
These are some of the most common mistakes investors make when investing in stocks. But to help you find great cheap stocks, our team at Cheap Stock Alert looks at all the criteria for successful trades. In other words, we’re using solid, proven analysis to find big returns on cheap stocks.
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