Retails would usually herd into attention-grabbing stocks

Studies have found that retail traders tend to go for stocks that are popular. The problem with going with stocks that are the talk of the town is that you go for them when it is already famous. Ask yourself this question, why is it famous in the first place? Most likely because people have already been hoarding it. If that’s the case, then you’ll most likely buy it higher at a time when people are already in the course of selling it.

Here’s another thing *whispers* in many cases, when big guns (big firms, wealthy investors, etc.) start hyping up on a stock, it’s most likely that they’re trying to sell it so that normal people like us will buy it from them as the price rises — this practice is commonly known as offloading. What we’re saying is not to completely distrust this bunch, but take it with a grain of salt and keep in mind, if they can make money all by themselves, why would they want to share it with you?

Emotion is the death of you

The most common emotion that led retail traders (new ones especially) to their doom is fear of missing out (or FOMO). I won’t lie when I say I’m the victim of it myself. Some stocks are hyping up, you see the price goes high, and you decided “Hey, if everyone’s buying it, it can’t be that bad, right?”

Wrong.

Of course, there are times when you look at all these hypes and look at the people who post things like “I made 100x the money I put in — how lucky can I be!”. As inspiring as that is, here’s the thing — there are many other instances when things don’t work out, and do you think they’ll share that with you? “Oh yes, another failed rally today, just lost a few grand, ha-ha,” would they sell that to you?

Overconfidence

Here’s another kind of emotion that would usually mess you up, new traders, especially. There’s no “what if I’m different from the rest?” in trading. You’d read into some clickbait inspiring quotes or stories from the internet, sayings like how Bill Gates swims across the current and buy when people are panicking, and how you should think out of the box.

Here’s the thing, yes, Bill Gates did that, but he knows exactly what he’s doing, he has a hoard of analysts in his firms, and his buddy is Charlie Munger, for the love of God. Yes, a market downturn is a good time to buy at a discount, and yes, you should grab that opportunity but look first, if that’s the strategy you’re compatible with. Warren Buffet invests, and you’re trading — these are two completely different things, will it work out for you?

Another thing is on thinking out of the box. It says “thinking” out of the box, which requires you to think, do your research, and not just stay out of the box just for the sake of staying out of the box. As hard a pill as it is to swallow — you’re not special, there’s no lucky star that will turn what you touch into gold.

A lot of people think “What if it would eventually work out for me?” and that’s the moment you know they’re done for. If you have to ask yourself that question, it means that you don’t even know what you’re buying. Trading is a battlefield, craft your strategies, hold on to them, ignore the noises, and ignore your emotions — fear, greed, etc.

You must make a profit

Here’s the roughest part of trading, if you don’t make a profit for the day, you’re making a loss. If you buy a stock at, say $5, and you sell it at $5. You might think you’re just breaking even — no profit but no loss. Sadly, you’re not — apart from your time, you’re also losing money. You have to pay trading fees, commission, spread fees, etc. to your brokerage.

But, here’s the thing, many experienced traders know this, there will be days, weeks, or even seasons that you’ll be making a loss. It’s part of trading. The key is not to be scared of losses but to manage the risk of loss so that if you lose your money, you can still trade the next day.

Inflation

Many new traders neglect this key factor when it comes to making money. Inflation eats into your profit. Sometimes the money you make isn’t as big as the inflation for the year. You can look at the 10% you make over the years but don’t forget to put inflation into the equation.

Here’s the thing, you have $1,000 to spend today, you could get yourself a good brisket and some other meals, or you could trade with it, and you decide to use it to trade instead. Good for you! After a few years, you managed to make, say, 7% — nice!

However, if the money you have can only afford you the same amount of brisket and meals, you might want to reconsider how you trade. We don’t want to discourage you, but you could’ve just bought the brisket in the first place.

Slippage

Here’s an often-overlooked thing when you trade, the price that you want to buy would most likely be the price you buy at. In many cases, your trade orders will only be filled at a higher price. This is what we call slippage. Say, you want to buy a stock when the price is at $100, but it doesn’t mean that you can buy it at that price, in most cases people are only willing to sell it at a higher price, say, $101. When doing your calculations, you’ll have to take this into account.

Taxes

There’s not much to say about this. You just made money? Awesome! Now here’s the government looking at your cash. Make sure to put this in your calculation.