Investing Strategies - 4 Mistakes That Can Doom Your Investing Strategies
Do you know the 4 big mistakes that can doom your investing strategies? You will after you read this article. Mistake 1 - Buy Long Only Prices go up. Prices go down. Prices go sideways. Investing strategies that work only when prices go up will be losers. * You'll win only about a third of the time. * You need investing strategies for down markets and sideways markets too. Here are some you can easily learn to do: In a down market * Sell short. * Buy inverse ETFs. * Buy put options and other option strategies for down markets. * Buy "hedges" - what goes up when the rest goes down. In a sideways market * Use non-directional option strategies. All this may sound scary, but it's easy. All you need is a little coaching. Mistake 2 - Fight the Trend Stock prices can trend up or down. They can drift sideways. When there is a trend, go with it. * Buy long in an up trend. Sell short in a down trend. Prices go up and down even when there's a trend. Prices always wiggle. * An up trend means up moves are bigger than down moves. * A down trend means down moves are bigger than up moves. Many would-be scalpers fight the trend. * They try to sell before the brief downs in an up trend. * They try to buy before the brief ups in a down trend. Don't do it! Here's why * Price moves against the trend are smaller than price moves with the trend. * Down moves in an up trend are smaller. Up moves in a down trend are smaller.
* Fighting the trend means chasing smaller profits. * Few people can time the brief moves inside a trend. Don't try. Smart investing strategies follow the old saying "the trend is your friend." Mistake 3 - Buy Without Knowing Why Most people buy without knowing why. They get a hot tip from a pal. They see a TV report. They read a newspaper. But investing strategies take research. * What will move the price? * When will this happen? How long will it last? * How big will the price move be? * What could throw off your plan? * What is your chance of success? You raise your risk if you don't even think about these questions. * Don't ask questions after you buy. Ask before. * Take your time. A decision made in mere minutes is risky. * Get good advice. You'd research a new TV or computer buy. Do as much for your investing strategies. Mistake 4 - Give Back Your Profits What should you do after you go into the black? Never let a paper profit turn into a loss. * Protect your trading capital - the number one goal of investing strategies. * Strategies that reduce risk are the long-term winners. Trailing stops are the best way to exit with a profit. * Place a trailing stop order right after you buy. * Your broker sells if the price falls to a price you name. * Your biggest possible loss should be no more than 3% of your total trading capital. Trailing stops move up as the price rises. * For example, if you buy at $50, with a 10% trailing stop you'd sell at $45 ($50 - 10%). * If the price rises from $50 to $60, you'd now sell at $54 ($60 - 10%). * Trailing stops never fall, even if the price falls. * Once your stop rose to $54, it would not go lower. No matter what happens to the stock price. * You'd keep at least $4 of your profit after the stock rose to $60. Trailing stops get you out before all your profit vanishes. That keeps a profit from turning into a loss.
Published on May 30, 2011
Do you know the 4 big mistakes that can doom your investing strategies? You will after you read this article.