Tuesday, June 17, 2008

Investing Mistakes and How to Minimize Them

Ah, those investing mistakes that everyone wishes hadn’t happened to them. Not all losing ventures in the stock market are due to foolishness.

For a plethora of reasons, including reckless advice from the “experts”, emotional trading, misapplication of the basic stock investing concepts, and failure to follow a proven stock trading system all can lead to the same end. Here is a list of common errors to avoid, improving your results and limiting those investing mistakes:

1. Never invest without a clearly defined stock trading plan. A well-conceived plan will include considerations of time, risk-tolerance, and future income….and a proven system for success (such as the Japanese Candlestick stock trading method). A plan that follows these guides will steer clear of most investing mistakes.

2. Investors don’t stick to their best investment plan. All too often, investors will feel changes in the market and not have faith in their plan. Although investing is always referred to as "long term", it is rarely dealt with as such by investors who would be hard pressed to explain simple stock market basics. Again, a good investment plan including a strong system can help to evade most investing mistakes.

3. Investors fall prey to the “one-trick pony” method of investing. To think that a rising stock will continue to rise indefinitely, especially if it is a company to which the investor has ties, is fool’s gold. Remember, portfolio diversification is a hedge against investing mistake. Follow your system and take your profits according to your plan.

4. Too often, investors are stricken with "analysis paralysis”, overdosing on stock market information. Such an approach is confusing, frustrating, and leads to more investing mistakes. Something else is good to remember; sales pitches do not constitute research! Technical analysis can be dirty work, but the end result is usually worth the effort.

5. Investors frequently are looking for the “home run”, that shortcut to a huge profit which usually only leads to more investing mistakes. A beginner investing in the stock market will abandon a profitable investment plan to take a chance on securities that cause nothing but trouble. The fact is, a solid plan will likely improve risk reward ratios faster, and more securely, than that swing for the fence.

6. Many investors fail to respect the cyclical nature of the markets and buy the latest fad in securities at its highest price. They will abandon the plan and system that was improving their stock market results and in turn, create a “buy high, sell low” trend in their investing. Such investors usually don’t have to suffer long; a trend like this will quickly eliminate the beginner investing in the stock market and their investing mistakes!

7. Many investing mistakes will involve some form of unrealistic expectations for an investor’s portfolio. Successful traders find that the most consistent success in investing requires a trip down the path of reasonable goals and steady growth. Trusting your plan and system make this trip more enjoyable.

A mitigating factor in the problems that cause investing mistakes is frequently the sensationalism that follows investing.

Media coverage of stock market data analysis has become akin to the sports coverage; somehow investing has been marketed like a sporting event, with winners and losers.

While investors “win” or “lose” their profits or even their investment, the market is not competitive in that sense. An informed investor, with his plan and system in place, competes for profits, not a spot on the evening news. Picking stocks that make a profit, not winning or losing, is the ultimate reward for avoiding those investing mistakes.
Source: http://www.candlestickforum.com

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