It is really quite simple. The reason many traders and investors lose money, or end out with mediocre results in the stock market, is because they make too many mistakes. Either they do not recognize their mistakes or they refuse to correct them. It just seems easier to blame losing on something else. The best path to take is to examine your own trading or investing behavior. Then take the appropriate steps needed to trade with solid time-tested principles.
One of the biggest mistakes an investor can make is holding on to a stock when it starts to go against them. Many people do not want to take a loss, so they wait and hope the stock will turn around, and begin to gain in price again. Often, the loss gets larger and larger, which causes great damage to their trading account. The best thing to do is always get out with only a small loss when a stock goes against you. A good policy is to never let a stock drop more than 10% below the buy price. Get out before that happens.
Another mistake is buying more shares of a stock as it falls lower in price. This is called averaging down. It is a big mistake, which usually produces miserable results in the stock market.
Human nature tells us to look for bargains to get the best deal possible. Many times, sound trading and investing principles go against what is normal human nature. You are usually better off buying shares of higher priced, top quality, industry leading companies. Do not buy a stock only because it is cheap. Usually stocks are cheap for a good reason.
Most of the time, buying a stock on a tip, rumor, or an opinion from a so-called expert on television, will produce bad results. It makes no sense to risk your money on the basis of what someone else says, unless you know for sure, this person uses methods and principles that have been proven successful for a long time. This is quite rare to say the least, in the stock market, or any other trading venue.
There are many other mistakes that traders and investors make, but these are some of the main ones. Study the true legendary traders and investors. This includes William J. O’Neil, Bernard Baruch, Gerald Loeb, Jesse Livermore, Nicolas Darvas, Richard Dennis and others. Learn their methods, strategies and principles. Implement what you learn into your own trading. Your overall results will improve dramatically.