5 Common Mistakes Traders Make Picking Stocks


Picking Stocks for Beginners

Selecting the best Stock Picks is can be a simple process if you avoid the most common mistakes Traders make when choosing stocks to trade. Using a Stock Pick Process can help you speed up finding stocks to trade AND improve the quality of every stock you trade.

Here are the 5 common mistakes Traders make picking stocks to trade:

1.  Relying on others to find stocks for you

2. Not calculating the Risk versus the Reward before entering the trade.

3.  Not properly determining the proper Stop Loss placement which affects risk calculations.

4.  Choosing stocks that have risk that exceeds your Risk Tolerance.

5.  Trading against the Institutional sentiment and their trend direction.

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Today we will discuss the first most common mistake. Everyone wants trading to be easy, and it can be a whole lot easier than what most Retail Traders do and experience. All too often Retail Traders are expending a huge amount of personal time and energy than they realize. This is a COST to your trading. Remember that when you are trading for profit and income, time has to be factored in as a cost. So how much are you worth? Write it down.

The mistake of relying on others to find stocks for you is very common. After all, won’t someone else do a better job of finding great picks than you could? Well that is where the big problem begins. Those who recommend stocks already have a vested interest in those stocks. They have bought the stock before they recommend it, and naturally if they can convince tens to hundreds of thousands of their followers to buy the stock too then the price will go up.

So now you are thinking okay, sure so that would be great right? You could buy that stock and it will run up. Here’s the big catch. The recommendation services are large lot Traders. So as smaller lots buy, they start selling larger lots for profits. That is how they make their money.

When large lots are selling and smaller lots are buying, what is going to happen to price?

The chart example below shows a recommended stock pick when it was around $106 - 110 dollars a share. Large Lot Sellers overwhelmed the Small Lot Buyers who thought they were Buying-on-a-Dip. Instead the stock fell sharply.

chart example shows buy on dip failing - TechniTrader


The weight of the larger lot selling will overwhelm the smaller lots who have lower capital resources. Whenever large lots are selling they control price and that puts you at risk of whipsaw trades.

Summary

If you have been trading at all you have probably experienced whipsaw trades more than once, or a sudden reversal of the trend in which you lose a lot of money. The first step to successful trading is learning the Process for finding excellent stock picks quickly. 


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Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros. 

Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses

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