Here are some “Do not do” while starting out trading or investing.
Trading and investing is not easy; it takes time and can be nerve-wracking. Keeping a calm mind and doing what you are supposed to do are crucial to success while exchanging. However, human psychology often does not work like that. We tend to act out of impulse reactions and emotional bursts that disrupt our understanding of reality. Bending reality and telling yourself that you are doing the right thing has nothing to do with investing and especially trading. So, how can you combat that? How can you stop being emotional? How can you improve your decision making? Trading or investing with an approach will help you become better at what you do. Plan your trade and trade your plan. Find the edge and learn from your mistakes. Investing and trading are about reducing the probabilities of your exchange going negative. Learn how to minimize those risks, and you will improve.
Now let us explore why so many newcomers stop trading after a few months after losing most of their money and having bad experiences. Here are 3 reasons:
- Underestimating their risk — Risk is the factor of success but also a failure. Often you hear the saying “higher risk, higher reward,” but that is misleading for newcomers. Many believe that trading or investing is a quick money scheme that gets them rich quickly. But it is the exact opposite. The longer you try to stay in the market, the higher your probability is to succeed in what you are doing. Jumping on penny stocks or cryptocurrencies that promise fast return rarely works out. Most people believe they become rich by spending their life savings on something that has not even a proof of concept yet is just idiotic, I think. Many trading critics argue that trading is compared to gambling, and it sure is if you only bet on something that has no real value and is not delivering yet. Do not just become an investor or a trader for the belief of retiring tomorrow because the market will spit you out with empty pockets. Be wise and use an approach to reduce your risk by setting up stop-loss and having a strategy, for example.
- Over leveraging — People get caught up by things like margin trading to get more money out of their trade. While having the idea of doubling your money at every 10% increase, it is also a swift way to the get-wrecked city. I see it all the time. Margin trading is very lucrative if you can do it. However, newcomers should not use it. This is a mix of my own experience and of what people have been telling me. You will lose more money while investing with margin than making any. Also, a common assumption is that many believe they need to buy into something with a tremendous amount of money at the same time. Do not be like that. Buy at 3 different points in time to average out the volatility and profit from low-value entries. Just throwing your money on the table as if you would go all-in in poker has nothing to do with investing. Stop believing the “get rich scheme” will get you there. Over-leveraging shows that people do not understand to handle their risk.
- Analysis paralysis — Getting every piece of information on a project won’t help you be a better trader or investor. You must understand that the more you know about a company, the more subjective your action becomes regarding projects you want to buy. It makes sense to get the fundamentals on a project. It makes a lot of sense to keep sticking to an analysis process and go through them with a consistent approach. Do not become too emotional about something, and if something seems to be too good to be true, don’t enter. It normally is. Being fascinated is good, but it should come naturally, do not let yourself be talked into something that you wouldn’t use or like. If so, you could not stand behind it as much as you should. Check on the team behind the project. Are these people worth having diner with? How do they handle the company? Checking information’s like these are essential and subjective enough to get your blood flowing for an investment opportunity. Every bit of information that is unnecessary usually is not necessary, do not get caught up by those small details.
There are many more reasons why newcomers might struggle in the beginning. I have been through many of these reasons, and I have learned from these experiences that becoming a better investor or trader is about how well you speak the language of the market you are trying to trade. Learn about your market and approach it the way it suits best for you. You will start to understand risk and control it, and you will not get caught up in analysis paralysis because you don’t have to anymore.
Trading is my passion.
I switched to trading cryptos because of the volatility and the returns it brought me. If you want to learn more about it, check out my website or my Youtube.