Top 10 Stock Trading Mistakes to Avoid by John Lansing

Stock Trading Mistake #1: Setting out without a plan

Setting out on your first foray into financial planning and investing without a well-planned investment strategy is like going on a cross-country road trip without a map.

Taking the time to develop a well thought out investment plan (including your financial goals, personal goals, risk tolerance, available investment amount, etc.) will help to protect you from trendy, and often risky, speculation.

Stock Trading Mistake #2: Trading on emotion

People are fallible and, more often than most like to admit, they make decisions based upon their emotional reactions instead of facts and research.

Doing your homework will pay off in the long run.

Stock Trading Mistake #3: Getting greedy

Novice investors too often forget to take profits from stocks that continue to rise in value. Remember, what goes up must come down eventually.

Do your research (maybe using some stock analysis software or an online trading service), read the professional analyses and take your profits before you lose them.

Stock Trading Mistake #4: "Analysis paralysis"

Novice investors in the stock market tend to "overdose" on information, becoming easily confused, overwhelmed and indecisive.

If you're on information overload, rely on the advice of your broker (if they offer it) and other trusted resources.

Stock Trading Mistake #5: Adopting the "get rich quick" mentality

Don't enter into the trading arena with a "get rich quick" mentality. While you may have success in trading, the best traders know that successful portfolio development is a bumpy rollercoaster ride.

The market is volatile. If you don't have the stomach for it, look for the lowest risk possible.

Stock Trading Mistake #6: Ignoring risk

A common misconception is that "low-risk" equals no risk. This is simply not true.

Risk can be managed, but you must realize that it does exist with every trade. A well-researched trade can minimize the chance of a negative outcome, but you are always taking a risk.

Stock Trading Mistake #7: Sleeping on the job

Many novice investors jump out of the gate strong, but their initial interest wanes over time.

If you don't have the time, or conviction, to regularly monitor your investments, rely on financial investment services and advice from professional investment counselors. Or, invest in established, well-performing mutual funds.

Stock Trading Mistake #8: Putting all your eggs in one basket

Remember the old adage "Don't put all your eggs in one basket?" It holds true for investments as well.

The truly successful investor has diversified investments to offset the ups and downs of the market. Spread your investments to increase profit potential and decrease loss potential.

Stock Trading Mistake #9: Following rumors

Novice investors are too often looking for an advantage in the wrong place. Don't make trades based upon a "tip" from your neighbor or brother-in-law. Conduct your own research, consult your investment adviser and be sure the facts support the "tip" before you make your decision.

Relying on tips alone can get you into financial trouble quickly!

Stock Trading Mistake #10: Investing money you can't afford to lose

Never invest money that you can't spare. Yes, you could make a killing in the market and triple your investment, but you could just as easily lose it all.

If you can't afford to lose it, you can't afford to invest it.