7 Mistakes To Avoid While Trading In Cheap Stocks

Do you know? In 2020 what are the top 3 cheap stocks on which you can try your fortune and earn huge capital? 

  • The Rubicon Project, INC RUBI (Prior Close – $7.99 USD)
  • Gogo Inc. GOGO (Prior Close: $5.40 USD)
  • NeoPhotonics Corporation, NPTN (Prior Close: $7.65 USD)

With the lowest barrier entry in the forex (foreign exchange market) and a computer, a high-speed internet connection, and a few dollars in your account you can start your trading.

But wait, it is not easy like it seems. Although you know where and how much to invest, do you know? how to do it.

Your entry in the big world of stock marketing never promises for the quick profit. Whether you’re a beginner or experienced, you also have been making some mistakes, due to which your growth in the stock market has stopped.

Hence, before you take the plunge, consider the following top 7 common mistakes that should be avoided at any cost, whether you’re going for big or cheap stocks to purchase.

Here you go, 

Don’t trade, if you’re consistently losing

Always consider the two foremost trading statistics, first is your win-rate and the second one is your risk-rate.

Your win rate is considered as the expressed percentage of total wins out of total takes. For instance, if you have won 70 trade deals out of 100 then your win ratio will be 70%. And a day trader should work out to maintain 50% criteria for the win-rate in order to stay in the stock market business. 

In addition to your ratio list, your reward-risk ratio should also be introduced for your acknowledgment. It can be observed by how much you win relative to how much you lose on an average trade. 

For instance, if you’re losing $60 as your average rate and your winning trades are $75, then your reward-risk ratio would be $75/$50=1.5. And if your reward-risk ratio is 1 then it means you’re losing as much or winning. 

When should you stop bidding?

Mark, it that day traders should keep their reward-risk above 1. If you talk about ideals then it should be above 1.25. However, if your win rate is less and the reward-risk value is high, you can still be profitable, or vice-versa. 

Hence, try to develop strategies that would help you to increase your win strategies more than 50% so that it could be worth retaining in this big business.

Trading Without a Stop Loss

Being a day trader you should have a stop-loss order for every forex trade that you make. It is because a stop-loss is an offsetting order that takes you out of the trade if the price order sets against your favor by an amount that you have specified. 

It can help you to take your precious large portion out of the investment. And moreover, if you’re losing more than that you can handle it, it prevents you from going into those situations. Hence, you shouldn’t avoid incorporating a stop-loss order. 

Risking More Than You Can Afford to Lose

Risk management always says about a key part that includes your amount of capital that you’re willing to risk on each trade. As we stated that the day traders should risk less than 1% of their capital on any single trade. It concludes that a stop-loss order closes if the results are no more than a 1% loss of trading capital. 

In the meantime, even if you lose several times in a row only a small amount of your capital will be lost from your pocket. Or if you make more than 1% on by winning your trade your all losses can reoccupy.  

Hence, you should always set a percentage for the amount of loss in a day. If you can afford for 3% loss in a day, stop yourself if you’re going above that point. Day trading is an addition, try to play with that money which you’ve and stick to your plan.

Trying to Win It All Back

Being into smaller approaches for trade, even after having risk strategy management in place. You can get tempted to go for bigger games than you normally do. And right now you better know it, but while trading you often lose your impulses and let her do worse.

Your several losses will yell at you to earn it back. You might have had several losing trades in a row, which will make you want to earn back some of the losses. But remember this way you are willing to risk everything. Right here traders believe in stop-loss orders as a hope to turn around and usually get caught up telling themselves that it will turn around and they’re gonna earn big.

Hence, if you don’t want your temptations to rule over you then stick to 1% risk per trade rule and 3% risk for your per day rule. Also, stick to your risk management strategy and avoid going all in one go.

Trying to Anticipate the News

We all know that pairs be it one long, one short or both correlated can both rise or fall sharply according to the scheduled economic news releases.  That’s why you should have a quick mind so that you can anticipate the direction of pairs move so that you can step accordingly to avoid downfall and make a windfall profit. 

It is obvious that the price will move in both directions quickly right before getting sustained in a particular direction. It means that you can be just a few seconds away from losing or winning a big trade. 

In the meantime, another problem can persist in the initial moments after the release, the gap between bid and ask price often gets bigger. Moreover, you may not find liquidity to get out of your position at pricing that you’re willing to have(using smaller trades to get out of the position).

Hence, don’t always rely on the news, always strategize your steps in a way that your trade can grow after the new release. It is because you have better anticipation regarding the genre that you’re into. But before believing too seriously in your figures always research in the affecting measures of the dedicated field. 

Choose the Right Broker

You could lose all your money if you get caught with a wrong broker. Though depositing money with the forex broker can make you the biggest trade. But If it got poorly managed, there are very high chances that you would lose your money in any financial trouble and trading scam.

Hence, always take time in choosing a broker. There is an ideal five-step process that helps you in choosing the right broker.

You should consider,

  • What you want to accomplish, 
  • What a broker offers,
  • And use reliable sources for broker referrals. 
  • Test the broker using small trades at first.
  • Don’t accept offers of bonuses with their services.

We hope that our piece has helped you to avoid such mistakes on a daily basis. Don’t forget to mention your feedback in the comment box.

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