The Biggest Mistakes Traders Make

There are all sorts of mistakes traders make that prevent them from profiting in the stock market. One of the biggest is a failure to take into account both a stock’s fundamentals and chart pattern. Still worse is the tendency of some traders to ignore both.

The fact is that both of these criteria are equally important in any trading decision. Buying a stock solely on a company’s fundamentals is not enough, because even top quality stocks with strong earnings, relative price strength and accumulation can become overbought and ripe for a big fall, and without looking at a chart, it is hard to visualize this.

On the other hand, a trader who chooses to trade a stock solely because it has formed a chart pattern that appears to hold great promise can also be disappointed, when, to his or her surprise, the stock comes up with a disappointing earnings report, and suddenly plummets in value. This usually happens when the company has no track record for generating strong earnings results.

Another mistake traders make is that they become impatient. Assuming they buy a stock that has both strong fundamentals and a chart that shows great promise, they tend to give up on it at the first indication of weakness. A lot of money is lost by “day trading,” or jumping in and out of stocks and not riding out a leading stock’s occasional periods of weakness.

Still another mistake traders make is failing to take into account overall market conditions. Traders expect their stocks to perform well even during periods of market weakness, and this is unrealistic, since 3/4ths of all stocks follow the action of the overall market. .