Trading isn’t for everyone. Most active investors fail to beat the market’s
average return. That’s because they make a lot of mistakes. While that’s an
inevitable part of investing, failing to learn from those mistakes and build on
successes can end up costing traders even more.
One of the most important things a trader can do is think about risk. After all,
every investment has a tradeoff between a risk and a reward, and most folks
start by seeing the big dollar signs that represent a fat reward.
But when you’re just thinking about the potential upside, you may be blinded
to the dangers that lie in a potential investment. Avoiding as many losing
investments as possible is a great way to ensure your long-term success in
the trading world.
Second, most investors don’t know how to set appropriate limits. They may
load up their portfolio heavily with incredibly risky companies, without
balancing out smaller trades. Or they may have just two or three stocks in
their portfolio when they should be trading with more on a regular basis to
ensure any single position doesn’t blow up the portfolio.
Finally, most investors fail because they get impatient. The market moves on
its own time, and if you’re expecting to buy on Monday and profit by Friday,
you’ll often be disappointed. But if you think a move is coming in a stock,
you want to give yourself enough time for that move to play out. That’s the
way astute investors play the market to win, time and time again.
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