|
|
Why Stock Market Investors Lose Money. Part One.
Most Stock Market Investors Lose Money Because They Buy High And Sell Low. Hmmm, ... why do they do that?
|
|
|
|
Have you ever lost money in the stock market? Why did you lose money? Everyone talks about buying low and selling high but most investors do exactly the opposite. Then instead of learning from their mistakes investors repeat the same cycle over and over again until they give up or run out of money.
A few us have been around for the long haul and learned how to trade, but for those that have followed this path, you know it's a tough one, filled with disappointments and financial losses. If you're still losing money in the market, here's some suggestions that might help.
Buy Low and Sell High!
This doesn't sound hard but it really is. It's a tough lesson to learn. Everyone talks about buying low and selling high but hardly anyone understands how to do it.
How Can You Buy Low And Sell Low If You Can't 'Time The Market'?
How can you 'time the market'? Most investors believe that they can't time the market. And thus you have a dilemma. If you buy into this belief system you're paralyzed and if you do take action your palms get sweaty. Why? Because you believe that you can't time the market. How can you buy low if you don't know where the bottom is? How can you sell high if you don't know where the top is?
When you don't know how the market works, you have only two options. You can stay out or get in nervously. If you get in and expect prices to go higher, when do you get out? How high do prices need to go before you'll take profits? And how much of a loss will you take if prices drop after you get in?
Picking Stock Market Bottoms and Tops.
It's impossible to pick exact bottoms and tops with 100% accuracy but does that mean you should buy stocks any old time and hang on into infinity? NO! An investor who throws darts at stock charts without considering market timing is on the road to financial disaster. Relax. There is a better way to make money with stocks.
How To Buy Low and Sell High
First we need to acknowledge that when prices are falling we should be thinking about our plan to buy stocks when prices are low. Secondly we need to acknowledge that when prices are rising we should be thinking about our plan to lock in profits.
This doesn't mean that we should take action, but we should have a clear-cut plan for when we'll get in and when we'll get out - BEFORE we get into a trade!
Your typical investor doesn't have any trading plan. When prices are falling and bad news is everywhere, investors are usually too scared to buy. They want to wait for confirmation that the market has changed direction.
The more fearful an investor is the longer they wait and the more confirmation they need. They want to make sure they're getting in at the 'right' time so they wait until they see that all their friends have made money in the market and good news is everywhere. Once they feel safe and secure they buy. But alas they usually buy at the market top or close to it.
Then instead of taking a small loss and waiting for lower prices, they hang on refusing to take a loss. After all they got into the stock market to make money not to lose it and they were sure prices would go up. After all, good news is everywhere. How can they lose after waiting for so much confirmation that the market is in an uptrend?
So they hang on to their losing position much longer than they should, hoping that prices will soon reverse. When the pain of financial loss is greater than they can bear, they get out of their stocks with a huge loss. This is the second mistake.
Their third mistake is that they usually get out near or close to the exact bottom! As soon as they sell all their stocks, the market usually reverses and starts going up.
Why Investors Don't Get In At Market Bottoms
Once again your average investor doesn't get in at the bottom. Why? There are three reasons:
1. They just lost so much money in the market, they're afraid of getting back in. (Or they know of people who have lost money).
2. They refuse to buy stocks higher than they just sold them for.
3. They need confirmation that prices will go higher.
So cautious investors who like to play it 'safe', wait and wait and wait. They want to make sure all their friends have made money. They want to make sure there's nothing but good news everywhere. They want to feel safe and secure. They want to be 'sure' they'll make money with stocks. When they're pretty 'sure' the market will go up, they buy.
When they finally buy stocks, they're nervous, - and for good reason. They just bought at the market top. And once again the cycle repeats itself.
Why does the market change direction as soon as the average investor gets in or gets out? I'll explain this in future articles. |
|
|
|
Back to the top |
| |
Copyright © 1997 - 2012 ArizonaCircle.Com. All rights reserved.
|
|
|