I did an interesting experiment today.
Over the summer, I’ve noticed that many of my friends have become interested in trading the stock market.
Therefore, to see if this is something that the rest of the public shares as well, I decided to analyze Goggle trends for search phrases like “stock trading,” “how to trade stocks,” “trading course,” and the like.
Unsurprisingly, people have been searching these phrases much more than usual in recent months.
So, with stock trading becoming increasingly popular, I want to share with you some of the key lessons I learned during my trading career.
Lesson 1 – Know Your Entry And Exit Points
When people look at the stock chart and see it increase by 100% from the low to the high, what’s their first thought?
If they were to invest $1,000, they would have doubled their money.
But in 99.9% of the cases, they would be wrong.
A trader will rarely pick the exact top or bottom, let alone both.
So, don’t expect that to be the case with your trading.
Rather than trying to predict whether a stock is at its high or low, what you should do instead is have pre-defined price targets where you would consider a stock to be a “buy” or a “sell.”
Moreover, you can help yourself by using technical analysis tools such as support, resistance, and trend lines for that purpose. I wrote about that in this articleLINK.
Lesson 2 – Avoid Emotions And Be Patient
Which brings me to the second lesson.
Just because you consider a stock to be a “buy” or a “sell” doesn’t mean the rest of the market agrees.
And when you’re wrong about something, which in trading means that you start losing money, that’s usually when emotions start to kick in.
Let’s say you buy a stock, and it doesn’t go your way. Will you sell it because you’re afraid to lose even more money? Or hold on to it because you hope that it will turn around soon?
Neither action would be appropriate.
As I mentioned earlier, you should predefine at what point you’re wrong and exit the trade there. That will keep your emotions at bay.
Similarly, a stock could go much higher than you expected, which, again, will invite negative feelings.
When that happens, you will wish that you didn’t sell as early. You might even consider purchasing it again, even if it’s at a higher price because you’re afraid of missing out on the opportunity.
Ignore such impulses. They have no rational reasoning behind them. If you’ve made a nice profit, then be happy for it and move on.
Most importantly, if you want to keep emotions out of your trading, learn to be patient.
When you see a stock that you’ve missed out on or have entered a losing trade, just say “whatever,” and don’t let it bother you. There will always be more opportunities in the future. And you should believe that religiously.
Lesson 3 – You Can Always Do More Research
Finally, as with anything in the world, knowledge is power.
If you want to trade on your own, then the only way for you to be successful is to study constantly. The more you know, the less likely you are to make a mistake.
And don’t limit yourself to only one source of information. Read books about successful investors, study history, discuss ideas with other traders, listen to interviews, read reports, and so on.
There’s always something more to learn. The missing puzzle you were looking for could be just around the corner.
Good investing,
Leon Wilfan
For Cashflow For Retirement
