The Top Ways to Avoid Investment Failure

August 28, 2019, By fierce,

Smart investors accept failure as an inevitability.

As long as you can learn from failure, the better off you’ll be. Here are five of the key mistakes I’ve used as personal learning moments.

Top Mistake No. 1 – Riding your Losses

Some of us never want to give up on a trade that we truly believe in. However, it’s never a good idea to let your losers ride. Admit you were wrong on a trade, and jump out. Now, that doesn’t mean you can’t buy it again. But for the time being, let it go.

Top Mistake No. 2 – You Don’t Use Stop Losses

This is one of the worst things any trader can do. One of the biggest issues facing all walks of traders is a severe lack of discipline and structure in stock buying habits. Many fail to use stop losses, or even protect gains with a simple trailing stop loss strategy. Others risk far too much.

Top Mistake No. 3 – You’re Risking far too Much

When it comes to investing, many of us get over-excited. We believe we found the “must own” stock of the year that could run 1,000% or more. We wind up risking far too much of our portfolio. Remember, there’s no such thing as 100% certainty with stocks, though. Risk perhaps 1% to 5% of your portfolio on a trade. And work up from there if you find great success.

Top Mistake No. 4 – You Trade Illiquid Stocks

Only consider trading small cap stocks that have volume of at least 100,000 shares a day. If you trade low volume, illiquid stocks, you may have a tough time getting out of the position, too. If your stock only trades 2,000 shares a day, what happens when you need to sell 1,000 shares that you own? You’re stuck.

Top Mistake No. 5 – Have a Trading Plan

Do you know when to exit on an up or down move? What stop losses or trailing stop losses do you have in place? Know these things, and set a plan so you won’t run into “crash and burn” scenarios as often as those with no plan.

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