3 Tried and True Methods of Losing Money Trading Stocks

by Nick on April 25, 2016

3 Tried and True Methods of Losing Money Trading StocksYes, the title is something of a joke. An investor like yourself surely doesn’t want to lose money at stock trading. What follows are three common behaviors that, time and time again, blow up in the faces of investors, at many different experience levels. Even if you’ve been investing for a while with some success, it’s important to remember the things that DON’T work. We have to remind ourselves about the foolishness of these behaviors because they’re easy to slip into without even realizing it. Keep these in mind, and you’ll be much more likely to receive better dividends in 2016.

  • Listen to the Media. Investment media is a wild waste of time for anyone who wants to make money. You’d be well-served to avoid it at all costs. The typical stock trading media personality is one of two types: 1) The self-important, dignified, know-it-all who seems like she’s so much smarter than you. 2) The clown, screaming and gesticulating like he’s performing an exorcism. These two types are both sides of the same coin, entertainers who usually know as much or less than you. Do your own research. One great way is to use a stock trading research tool to understand the inner workings of a stock you’re interested in. The above link will lead you to many internal resources, like Highest stock price records for every stock of note, market cap data, and countless others. It’s hard to gain real insight about stocks, but it is attainable. Just do your own research. Ignore the media whenever possible.
  • Make Frequent Trades. Trading for stocks costs money, over and above the price of the stock itself. Many traders get hyped up on the excitement of trading, and make many more trades than they should, cutting into their dividends each time. Each trade you make should be on the basis of careful planning. If you’re making frequent trades, it’s unlikely that you’re doing more than stabbing in the dark. Not only will this cost you a lot in brokerage costs, you’re more than likely to lose lots of capital to investments that go south.
  • Try to Time the Market. I hate to tell you: no one can predict the future. And even if someone could, you and I most certainly can’t. When the market reaches thrilling heights and makes terrifying falls, don’t assume that you can predict where the ceiling or floor is. Many investors sell during bull markets, only to see the market go far higher. Others try to buy stocks “at a discount” during a bear market, only to see the market far even further, costing them their investments. Make calm, calculated decisions that aren’t a gut-reaction to the market’s turmoil.

There are plenty of other frequent investment behaviors that are disastrous, but these are three of the biggest offenders. Stay well clear of these, and you will have more success that you will if you do these things.

This was a guest post by Andrew Black, a finance writer from Baltimore, Maryland, where he lives with his wife, cat, and giant schnauzer.

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