Learn from those who made the worse mistakes beginning investors make… so you don’t have to.

Tony Robbins recently released his book Unshakable in which he states the biggest mistake for anyone in investing is “not to get in the game.”

He’s right.

Whoever you are and whatever you do, in order to reach your financial goals and build the life you dream of, it will be necessary to invest and grow your wealth. And for most, the easiest way to do this is to invest in the stock market.

But, there are some important secrets that you should understand to be a successful investor.

It is an exciting feeling to invest and trade in the markets, whether you’re doing it part time to build additional wealth or as a full-time trader. It is even more exciting once you find a couple of strategies that work for you and you start to produce winning trades. This gives you confidence as an investor, gets you in a rhythm with the markets, and produces the excitement rush of “beating” the market.

It’s at this time that beginning investors typically make their biggest mistakes, and why most who invest in the markets lose money over time. I know…I’ve been there!

#1. The biggest mistake that beginners make, especially when they get initial wins, is thinking that the market is going to stay in the same character and they can always keep winning with the strategy that is working.

Sadly, this is not the case. Ask anyone investing through 2007-2008. Just when an investor feels most comfortable and decides to “go big” is when the market will change character and the losses will come. This mistake was my first $5,000 lesson. I say “lesson” because once you actually lose money, you don’t tend to forget it.

A mentor of mine once told me, “great investors learn by getting killed, getting back up, dusting themselves off, and then vowing never to die that way again.” He could not be more correct. The market is riddled with stories of investors who lost it all or made the big bet and lost.

The best way to avoid this mistake?

Never take the market for granted, invest with a plan, and be very wary of the little voice in your head that says, “Everything is going great, the setups are perfect, triple the normal position size, and let’s really make some money!”

It is always at that time that the market changes and so does your ability to win.

Investing in the market is an exercise in self-control and the balance of emotions over logic. You have to stay grounded and always remind yourself to think logically.

#2. The second mistake beginning investors make is not establishing rule sets and planning for success.

This is the mistake that I was most guilty of before creating the system I use today. I am an entrepreneur and have been successful in building multiple businesses, including an INC 5000 company, because my partners and I were willing to take risks to make things happen.

As I have found, taking a risk in building a business is much different than taking a risk in the market. When you take a risk in building a business, you have much more control over the outcome because you and those involved have the ability to affect the outcome. You can work harder, you can meet with potential customers face-to-face to get a “big deal” done, you can find other partners that can help you achieve your goals, etc.

In trading, you do not have the above luxuries. Sad to say, but most “retail” investors (those that just put money in mutual funds or buy a stock) have very little way to affect the outcome. They hope it will make them money. And we all know hope is not a strategy

Hope is not a strategy.

You never “win” a trade once you are in it…you win the trade by managing your risk and defending your position. You only make money when you get out of the trade. Until then, it is just paper profits.

What you can do is put the odds on your side and mitigate your risk by working a good strategy/system and having defined rules and thresholds that you will follow.

Why is this so important?

Well, as you will find, many-times investors have a chance to make a profit and “want to hang in there” for even more profit and then they lose.

For example, I trade options and have a rule that if I reach 50% of my profit goal in the first two weeks of a trade, I take it and get out. Sure, I could probably make a little more, but after tracking trades for years, I know it’s not worth it to stay in as I will tie up capital longer and lose more than I win over time by staying in.

Rules and thresholds help you to mitigate risk. The truth is that no matter what, there will be trades that you will lose, but with good rules and thresholds that stop you from taking a full loss or that allow you to lose a small amount but still stay in the game; you have a much better chance at winning over time.

As I said earlier, this is where I made my biggest mistakes.

I thought that I could manage my trading business like I did my other businesses and thus would take on more risk. I had rules sets, but would let trades go outside of them…because there was a chance that “I could win it and I was willing to take the risk.” Like many other traders have found from the same experiences, I got burned and it took me a long time of diligent, rule-based investing to make the losses back.

If you are going to invest, plan for your success.

Make sure that you have defined rule sets and thresholds of when to get in and out of your trade. Before you make the trade, know where you will take profits and how much of a loss you will allow before you exit and then stick to it!

As stated at the beginning of this article, investing in the markets is an exciting experience and can create amazing wealth for you. By learning from the mistakes of others and finding good mentors that can help you along your way, you will find success that much faster. Always remaining diligent, learning from your mistakes, having a plan for your trading business that balances logic vs. emotion, and utilizing rule sets and thresholds will help you to win over the long run.

[Ed. Note: Dave M. Lukas is a serial entrepreneur, best-selling author of “The Ten Year Career, The Fast Track to Retiring Young, Wealthy and Fulfilled.”, investor, and Founder of the Misfit Entrepreneur Podcast. His companies have been on the INC 5000 List multiple times]