Common investment mistake No 4 By Darren Winters
Getting over-confident after just one or a few early successes
Maybe it hasn’t happened to you (yet), but I’m sure a lot of you can relate to this situation:
You’ve just started investing, you’ve done a couple of great trades, and you start to have a conversation with yourself a bit like the following: “I sure am a hot investor, this stuff is easy, I’m a natural, I don’t know why I didn’t quit work years ago, at this rate I’ll be a Millionaire in just a few months or even sooner with a bit of leverage see mistake 5), just call me the stock market master, or supreme ruler of kingdom of wealth” – you get the idea.
How To Avoid : Getting over confident after just one or a few early successes –
You need to know the following. The stock market is just a game of probability. Even if you are the best investor in the World (and I know him personally so I can back this up!) you won’t win every time you do a trade. But if the odds are in your favour ultimately the more times you trade, the more money you will make. Unfortunately the reverse is also true, if the odds are against you (i.e. you don’t really know what you are doing) then the more you trade, ultimately the more money you with lose. Many people get a lucky streak when they first start out but don’t really have a good investment strategy, so they then go on to lose it all. How do we avoid this happening? Just being aware that you might have had a lucky few trades is a good start. The real answer is to make sure that you have some kind of investment strategy that you are following (a set of rules that you use to pick your shares that you can repeat). Once you have a strategy, you need to test how good it is, by properly paper trading it. Now what do I mean by paper trading? Trading with pretend money as though you were investing for real. How do you do it? Simple – choose the shares you would want to buy based on your strategy and then instead of actually buying them with real money, write on a piece of paper the date, price and amount of shares you would have bought. Then follow what happens to your pretend share trades – once the share reaches a place where you have decided (based on your strategy) you would have sold it, write on the paper the date and the price you sold at. You can then record your ‘paper’ profit or lose for that trade. Ideally you would want to do this for about 30 trades to give you a good idea as to whether your investment strategy is likely to make you a fortune or break the bank. Here is an example of what your paper trading sheet could look like the table below:
Regards Darren Winters
Maybe it hasn’t happened to you (yet), but I’m sure a lot of you can relate to this situation:
You’ve just started investing, you’ve done a couple of great trades, and you start to have a conversation with yourself a bit like the following: “I sure am a hot investor, this stuff is easy, I’m a natural, I don’t know why I didn’t quit work years ago, at this rate I’ll be a Millionaire in just a few months or even sooner with a bit of leverage see mistake 5), just call me the stock market master, or supreme ruler of kingdom of wealth” – you get the idea.
How To Avoid : Getting over confident after just one or a few early successes –
You need to know the following. The stock market is just a game of probability. Even if you are the best investor in the World (and I know him personally so I can back this up!) you won’t win every time you do a trade. But if the odds are in your favour ultimately the more times you trade, the more money you will make. Unfortunately the reverse is also true, if the odds are against you (i.e. you don’t really know what you are doing) then the more you trade, ultimately the more money you with lose. Many people get a lucky streak when they first start out but don’t really have a good investment strategy, so they then go on to lose it all. How do we avoid this happening? Just being aware that you might have had a lucky few trades is a good start. The real answer is to make sure that you have some kind of investment strategy that you are following (a set of rules that you use to pick your shares that you can repeat). Once you have a strategy, you need to test how good it is, by properly paper trading it. Now what do I mean by paper trading? Trading with pretend money as though you were investing for real. How do you do it? Simple – choose the shares you would want to buy based on your strategy and then instead of actually buying them with real money, write on a piece of paper the date, price and amount of shares you would have bought. Then follow what happens to your pretend share trades – once the share reaches a place where you have decided (based on your strategy) you would have sold it, write on the paper the date and the price you sold at. You can then record your ‘paper’ profit or lose for that trade. Ideally you would want to do this for about 30 trades to give you a good idea as to whether your investment strategy is likely to make you a fortune or break the bank. Here is an example of what your paper trading sheet could look like the table below:
Regards Darren Winters
posted by Darren Winters at 10:54 AM
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