Top Ten Mistakes To Avoid In Today's Stock Market
By Adam Mesh
March 18, 2008
Page 2 of 4
5.) You Weren't There For The Wedding, Don't Be There For The Funeral - This is an old horse racing proverb. If a horse had won several races and you had never bet on it, but now you wanted to, the wise men who had been around horses for years would say, "You weren't there for the edding, don't be there for the funeral." You get the best odds and most bang for your buck at the beginning and it goes progressively down from there. Look at APPLE (aapl). The stock had been on fire. It got over two hundred dollars in price. Everyone was making money in it until they weren't. People lost thousand and hundreds of thousands of dollars because they bought APPLE between 180 and 200 in price. The worst part, when it hit 160 they continued to hold, HOPING it would come back. Now APPLE is in the 120 range. they missed the wedding, they should have remained unattached.
6.) Don't Buy Stocks Ahead Of Earnings - The allure of the stock market has always been and will always be the opportunity to make far more than you are risking. There should be a 5 -1risk/reward ratio when you enter into a trade, not a 1 to . When it's 1 to 1, you might as well be at a blackjack table. When stocks have earnings, the risk/reward moves from 5-1 to 1-1. This is because we are expecting a significant move in the price of the stock but we're not sure which direction the move will be. Nobody is. If you had lunch with the CEO of a company on the day before his company had earnings and he told you exactly what the announcement would be, you still would have no idea how that announcement would influence the price or direction of the stock. There are expectations and motives that will cause the stock to move and these are separate from the actual earnings and forecasts. There are plenty of opportunities to capitalize after the news is out and the risk/reward is much better.
7.) A Buy And Hold Strategy Is No Longer A Viable Option - In today's market, you are doing a disservice to yourself if you buy stocks and forget about them. With all of the variables coming into play (credit worries, oil prices, recession, stagflation) you need to take an active role in managing your money. This means protecting profits and even more importantly, limiting your risk. Placing stops below critical support levels will lower risk and give you the best chance for a profitable trade. Even if you do buy a stock and you are okay with it having a big drop because you "know" that in the long run, it will come back, how much of you money is going to be tied up in this stock, for how long and how much could you have made if you put that money somewhere else? You're not a mobster so don't forget about it, take an active role in managing your stocks.
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