Top Ten Mistakes To Avoid In Today's Stock Market
By Adam Mesh
March 18, 2008
We are experiencing a critical time in the stock market.
The ongoing credit crisis has sent stocks spiraling down and the light at the end of the tunnel is very dim.
However, there will always be speculation (including my own) so if you are involved in the market or planning to get involved, here are the top ten mistakes you need to avoid.
1.) Don't Try To Catch A Falling Knife - If a stock is dropping, it's not your job to save the company. If it's falling hard and it's falling fast, it's falling for a reason. Too many people make the mistake of thinking, "wow, this stock has dropped twenty dollars in value, I can buy it now and definitely make a quick five dollars. WRONG. More likely, it's still got a ways to go. AMBAC (abk) was at 96 this year. It's now below 8. Let someone else save the day and pick the bottom. It's okay if we miss the first couple of points if there's really going to be a rally. If you try to catch a falling knife you will get hurt.
2.) Like The Book Says, Do What Wall Street Does Not What They Say - If you get in the habit of buying stocks because they are upgraded or selling stocks because they are downgraded then you're probably developing a bad habit. You need to learn how to evaluate the stock for yourself. Not a full scale investigation of the company, simple steps such as monitoring the volume to look for a buying or selling pattern, recognizing support and resistance levels and utilizing key charting patterns. There could be a very good reason for downgrading a stock but it doesn't mean that it's going to move up big before it goes down or vice versa. When COACH (coh)got downgraded at thirty dollars, I bought it and sold it at 33. It eventually went down but not until after there was good money to be made in it.
3.) Don't Trade Penny Stocks, Period! - Stop buying thousands of shares of a ten cent stock just because you can. the stock market is like life, you need to earn what you make by being consistent and doing the right thing. If you look for the easy way out (buy a bunch of a really cheap stock and hope it goes up) then you'll probably start going in reverse and then the hole you need to dig yourself out of will be that much bigger. Sure, you can make big money fast every now and then but like life, you can win the lottery too. Do you want to risk your stock market venture on those odds?
4.) Remember That You're Buying the Stock Not The Name - Too many people make the mistake of buying a stock because they recognize the name or like the product. That makes sense if you're looking to buy it and hold it, forever! That's not the strategy you want to go with, especially in this market. You need to get in the habit of making money and protecting your profits or limiting your losses. Just because STARBUCKS (sbux) makes great coffee (opinion) does not mean that you should buy the stock. They've been making the same coffee for a long time but the stock has ranged from over forty dollars in price to the mid teens. Your buy and sell decisions should be based on where the stock is and where it's going to go.
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