How to lose money on the market . Common mistakes what not to do etc
Poster ammie
link 30578113
This first part is based on what I have observed recently, with no disrespect intended to anyone. However I thought highlighting this crazy, emotional trade might be helpful to some.
How to LOSE money on the market:
1. Buy a stock hyped on HC, expecting to be able to flip it for a few pips quickly after it has had a good announcement.
This can work sometimes but unless you know exactly why you are buying (and no, wanting to flip it for 2 pips is NOT a reason, you need a reason why it’s going to continue to rise) you will lose more than you win. Quite often, announcements are built in to the price in advance so holders sell on news.
2. When your stock falls after purchasing, post on HC daytrading asking what you should do.
You ALWAYS need to have your own strategy when you buy a stock which dictates when you’re going to sell – both taking a profit or minimising a loss. You need to be prepared for both outcomes. Also be clear in your own mind as to how long you are willing to hold that stock – if it’s a daytrade, sell quickly, other trades will be longer term, waiting for a price target or event or what ever is dictating your exit. Trading without a plan and worse, relying on others to advice you on what to do, will lead to disaster
3. Kid yourself that you are a trader.
I guess there’s a continuum so technically buying and selling shares makes you a trader. However to be a "real" trader with any chance of staying in the game , you need to have a system and strategies and put in the work. This is harsh but I think if you just buy and sell “hot” stocks without any real understanding of what you are doing, you are kidding yourself that you are trading. The market has been very forgiving for a long time really, although the last 6 months have been particularly easy, so you might be able to get away with that for the moment but when times get tougher, you won’t stand a chance unless you put the work in.
4. After buying on hype and watching your stock go down without knowing what to do, sell as soon as the stock rebounds and you can break even or even take a minimal profit.
This “relief” selling links back to the previous points about having a strategy and once again, you need to understand the stock so that you can set a sell point that is based on some sort of informed reasoning. This point is frequently cited as a beginner mistake and is a great way to minimise your gains as quite frequently that rise is a bigger move and you could have made much more money if you had an informed plan.
5. After you’ve sold, watch the stock continue to rise and then post that you’re thinking of buying the stock (once again near short term highs) and asking on HC again whether you should be buying.
Refer to previous points – you’ll never survive as a trader if you don’t take responsibility for your own trades, do some research and have a clear strategy. Also being behind a price move, rather than on the wave or ahead of the move, will lose you more money than you make.
Apologies if you recognise this as you. However this poster is not be unique and there would be many newbies following that losing strategy so if you do recognise this, you are not alone. Most of us have been there and done that.The intent of this post is to help, not to hurt, so I hope that someone can learn from it.
Other ways to lose:
This section is just re-iterating comments made on this forum in recent times.
6. Get caught up in the hype and excitement and “glamour” of daytrading.
Be very careful of daytrading and the daytrading forum, particularly if you are a newbie. Consistent daytrading is difficult and the average daytrader frequently makes great profits and then give most of it back when they go through a rough patch. Some people are suited to it, most are not. There’s some good leads on that forum but there is also a lot of ramping of stocks which people already hold. Also successful daytraders are very decisive and very skilled. They will frequently have traded a stock 3 times while someone new to trading is still trying to decide whether to buy or not. (And you don't have to be new to relate to that. I definitely don't have the speed and decisiveness required for daytrading. I do some daytrades when the conditions are right for me, but would never classify myself as a daytrader). However, there are some excellent day traders and they are good to observe and learn from, just don’t kid yourself that you will be able to keep up with them. You may but most won't and it's not a negative to admit that some styles of trading just don't suit you. You just have to find your niche.
7. Blindly following other people.
Even if you follow a very successful trader, you can still come unstuck as you may not have the same timeframe or the same trading style. So for example, someone might pick a stock early and be willing to hold it until an event occurs but you may not be able to hold it for that period of time so they might make multibag profits but because you couldn’t hold on that long, you may sell for a loss. There’s an old saying that the market can stay irrational longer than you can stay solvent. At a more personal level, there are also other traders who will stay solvent longer than you so they can wait through long delays whereas you may not or you may simply not have the patience and want to focus on other opportunities. The flipside of this point is that sometimes others will be happy to flip for a pip and you’re aiming for a bigger profit, so the trader you follow is long gone while you lose confidence and don’t know what to do with your holding.
8. Needing to “keep up” with other traders, (if it makes you emotional or messes up your trading style).
Others can be a benchmark to measure yourself against but there will always be those who make more than you and those that make less. Trying to keep up can throw you off your own personal trading style and once you’ve lost your strategy, you will be well on the way to losing. Benchmarking can be a positive or negative, depending on how you use it and how it affects you. Don't do it if it makes you emotional as envy, needing to impress etc can lead to more losing trades. Trading is a journey of continual self improvement and if measuring yourself against others, doesn't work for you, just measure your improvement and celebrate your personal improvement. If benchmarking does work for you and pushes you to do better, ignore this point and go for it.
9. Thinking trading is easy and you don't have to work too much.
Trading definitely gets more mechanical and easier with experience and the more knowledge you build up, the easier research is. However, if you do want to be successful, you will always have to put in the effort. There's no free lunch here even if some people make it look that way.
My biggest mistakes
This is personal but thankfully, most of these are historic and some are nearly in the archives! #5 is still current but I at least have a strategy for that now.
1. Not doing the math on leverage.
I knew leverage was a magnifier and increases your profits on the way up and increases losses on the way down. However, I hadn’t done the actual math and completely underestimated the size of losses I could make by trying to hold through a down patch.
2. Being forced to sell with a margin loan – variation of the above point.
I had stocks which I had a clear strategy for and they were good stocks which I was happy to hold during a rough patch. However, pros do try to trigger margin calls and I got hit by one of those which meant I had to sell at what I thought (and actually was) the bottom. It didn’t matter how good my strategy was as I couldn’t stay solvent. What hurt most with that one is that I just needed to get through an extra day or two. It really was the bottom when I got caught out
As a result of 1 & 2, I don’t use margin loans or leverage anymore. Even though I am confident that I wouldn't repeat those mistakes, I just don’t think it’s worth it and I guess I’m in the financial situation now that I don’t really need it anyway.
3. Sticking with a stock for too long.
If a stock had a good story, I tended to keep holding while the story unfolded. However, no matter how good stocks are, they tend to have the best SP gains early. While the long term story was good, I kept holding after the SP run up which just tied up capital for no further gains or minimal gains which just weren’t worth it. Some I held to a loss.
4. Free carry complacency.
I bought PDN at about $1 and sold a third at around $4.50 which was my money back plus a little profit and then sold another third at about $9. Great!
5. Being fully invested so not having the free cash to be able to take advantage of good opportunities.
I still struggle with this today but at least I take profits out of my trading account now so I do have cash backup IF I really need it.
6. Nearly forgot my big loss. I was overweight on a stock which I was confident was going to have good results and they didn't and gapped down massively. Both junior biotechs and junior oilers are great at that because the results tend to be binary - you either win or lose. None of the inbetween that you get in other sectors or bigger stocks.
I feel like I'm in a good place with my trading now.While I could do better and have lots of room for improvement, I'm past those big glaring mistakes of my younger years. But gosh, there have been some shockers. Experience in the market is so valuable. Never underestimate it.
There's really nothing new in that lot. The same things always pop up in articles, trading books, posts etc. So I've just reinvented the wheel. lol. Hope it helps someone.
Poster Dazzle101
link 30581575
" How to lose money on the market - common mistakes made by newbies,
worst mistake(s) in your experience, what not to do generally"
How to lose money imo is to not have a Trading Plan.
I believe you must have a minimum, at least basic set of rules of engagement.
These must then be implemented unemotionally.
For example;
On entering the Trade I not only need to work out my Buy, but also my Sell ( or sells ),
and my Stop Loss.
So many new people will buy, hoping it will go up.
Not even contemplating what they will do if it drops 5%, 10%, 20%, 50% ?
I found my Trading got better when I looked backwards at trades,
I heard saying like;
" Assume every Trade is a losing trade,
and Trade Manage accordingly - Only until proven otherwise "
Like playing defence or counter puncher etc
By not having a Trade Management Plan,
You are guessing position size, inconsistent, and ultimately are like a jellyfish in the ocean currents.
With no pre determined set of guidelines and safe guards.
A basic example may be;
My position size is no more than 10% of my capital.
My Sell is :
100% @ +10% gain or
50% @ +5% and 50% @ +10%
50% @ +10% 50% +20%
50%@ 10% 50% Trailing stop
Free carry options
etc ect
My Stop loss is -10%
Come rain, hail or shine.
The above figures are a round example,
and I know in micro spec land achieving these stops can be difficult.
So another way to approach the Micros is a smaller position size with no or higher stops.
Might be 2-5% Capital, no stop let it run.
Binary play, write it off or profit.
At least it is still an intended, calculated amount and plan relevant to Capital.
All these formulas and mathematics you need to work out,
because if you don't then sure enough that stock ( Which was my biggest mistake )
will continue to fall and fall into oblivion.
Capital preservation is and must be the Number 1 rule to adhere to.
No Capital, no account.
Trading finished, no bullets left.
I think you must have a set plan,
and the mathematics of your plan must add up.
You may only get 50% winning trades,
but that's ok if your formula for taking profit and cutting losses works correctly.
Small position sizing is obviously very important for newer players.
Learn Ta Basics,
Price and Volume
Candles, and basic chart patterns.
Support and Ressistance.
Moving Averages.
Etc
Read Books, Technical and other Traders,
Mark Minervinni etc
Learn FA Basics.
Share on issue
MC
EV
Top 20
Director sells / buys
Stock history
Revenue / Profit
Cash flow
Follow quality Traders and Fa practitioners,
learn what they are saying, mining grade specs etc
EPS, NPV etc
Look at Macro, work in with Trend, Sector, Momentum.
Pick a style.
DT , STT , Momentum / Swing, Investor etc, then stick to it.
Work out what you are drawn to, what you are good at, what suits your personality and style?
Also factor in possible other work commitments, as to make sure you can implement the chosen style.
I.e. EOD trading, Live screen time etc.
Learn, learn and continue learning.
Find Mentors, successful people and learn their skills.
Then integrate and implement into your own style.
Be super professional with your Trading.
Remember it's always real money your playing with.
Balance life, Trading and emotions.
Remember it's still only Money after all
P.S. Don't force trades,
Over trading is a killer.
Let the trade pop up and come to you.
Sit and wait like a Tiger, then pounce and kill.
Then back to rest, find next set up, chart pattern.
Watch list, follow, set alerts.
Wait, wait patience for entry .
The market ain't going anywhere,
there will always be another opportunity, hot sector or next big thing.
Make hay whilst the sun shines, things are super hot, can increase Trades / sizes.
When things are tight back off.
Observe seasonal / Monthly fluctuations.
Yearly bull and bear markets.
Cash can be your friend in times of higher volatility.
One trade a year with the right set up and margin can change your life.
You don't have to make 1000 trades.
GL Ya'll
poster Malaga
link 30580306
The market is wrong and I am right. So many times you see a share come under pressure and holders refuse to see the obvious. Case in point PNN Share price dropped on minor delay, buyers jumped in pushed price back up. Few warning signs and price dropped again. Holders claiming the market has got it wrong this is next AGY. Poor drill result and holders still claiming market has it wrong so revenge buy to prove the market wrong. Share price down nearly 50% THE MARKET WAS RIGHT.
Life changing, so I am loading up, refer to Danzar;s post about GSW and people with nearly all their investment in one company.
No such thing as a sure thing, black swan events, dodgy management and just market changes can ruin your life. EG I know of people with most of their lifesavings tied up in a certain Angolan diamond miner, one day we will find the source and my $300,000 worth of shares I bought at 40 cents ( currently 24 cents) will make me a multi millionaire till then the family can live on baked beans.
We all make mistakes but you have got to make sure you survive to fight another day.
Have a great week end
Poster roberter1
link 30580423
What not to do? Short answer don't be stupid and greedy I guess
These type of themes leave me little bit cold as by definition they suggest there is a 'right' way and 'wrong' way of going about things.
Not necessarily true in my eyes as market is a collection of individuals with all the rights and wrongs that implies.
Some very good posters here who I assume make good money but after reading posts my 1st reaction is 'not for me', reasons different agenda, risk profiles, personality traits, ethics and on and on.
Couple of truisms though I would suggest;
Don't cede responsibility to others for your trading.
Don't rush into it, invest time in working out the 'lay of the land'
Don't rush into it, slowly increase exposure to market as your ignorance of it lessens.
Don't think apprenticeships do not apply and are not of immense value, they are as in every other aspect of life where value lies.
Don't trade if you have a hard time with the definition of 'common sense'
Don't trade if you have no idea of your emotional make up, we are all flawed gems, trick is to be aware of the flaws.
Beyond that go for it, just an excuse of another PF classic if truth be told, off with the family down the coast before it's all sold up for land banking.
Poster Diver Dan
link 30581311
Overtrading is a good way to lose money. The problem with this cliché, though, is that everything is relative; only you can know if you are over-trading. Which leads to -
Failing to appreciate the value and art of doing absolutely nothing. In most paying jobs, if we stop working we are not living up to our potential and we feel guilty. Trading is sort of unique in that our ability to slow down or stop for periods is essential to maintaining both capital and sanity. I’ve never returned from a break to find that all the good trades had left without me.
Failing to come to terms with our own behavioral tendencies. Again, figuring out your personal strengths and most importantly your weaknesses is easier said than done. You could get objective insight from a behaviorist, but that could get expensive. Or you could just ask your spouse or mother in law to make an unvarnished list of your shortcomings for you.
I have made too many mistakes to list: If a trader can make it through his or her formative years in the seat with sufficient trading capital intact, they are blessed. In those first years we sometimes perceive trading as something akin to gambling. We might find ourselves wrapped up in magical thinking; we might rely on imagery of preordained destinies or expectations based on the blood and sweat and extreme stress that by any other standard should result in great rewards.
It seems that one mistake is not thinking enough about or being critical enough of my own concept of time. This sometimes meant being unconscious of how much time I actually had in a derivatives trade – math is so much more boring than gut feelings - or how much time I had to get to a financial goal or self-imposed milestone in trading. Perhaps understanding how arbitrary, imperfect and fragile our concept of time can be is important in everything from derivatives trading to investing.
Of course this is not unique to trading. Just ask an elderly person about the subject of time in the context of the important things in life.
Poster Value Tracker
link 30581533
HA finally a topic i can contribute too!!
Big way to lose money in the market = investing in bad management !(and believing what you read)
When I first started trading aprox 15 months ago (yes I am as green as they come)
The management of a company made an announcement that some assays would be provided to the market by a certain month, this was around about the time of the middle or end of first lithium wave so any mention of lithium and SP would go up , so I went all in on the premise that ‘assays will be available in november’ a month or two from announcement (some will know this company from that statement)well they never came and aprox 15 months later they still have not arrived!(I am sure there were none to begin with = straight up conned !) so SP dropped as no assays came so I held the stock for good 10 months or so waiting and waiting for SP to recover only to give up and sell at 35 to 40% loss as capital best used elsewhere!
(half my own fault aswell for buying near the top and a dog stock aswell)
Took me about 6 months of trading to realise not all management is trustworthy and they have many many many tricks at there disposal.
I still cannot believe the shite they get away with !
good link here too !
https://hotcopper.com.au/threads/selmas-day-trading-tips-for-newbies.3364752/HA
Poster Dazedanconfused
link 30581848
I count myself as a genius.... because I can make mistakes nobody else has ever thought of.
My strengths are also my weaknesses. I am idealistic and trusting.... a few years in the 'market' has changed me a bit. Thankfully I have not lost those traits .... but when I enter into the 'water' these days I do so slowly and cautiously.
I don't regret any mistake I make ... but I do regret suggesting stocks for friends to buy... mostly my friends have lost money when they acted on my well intended advice, so I never do so anymore [even if I am extremely confident...because having a good tip is only about 1/4 of the task... the other 3/4 is money management].
I think the biggest mistake I made was committing too much money to the market when I first started... it only took a few years to lose most of it...
Participating in the market is what is known as a 'non trivial problem'... but I think it can be broken down to a handful of requirements. It's about being able to value something, money management [i.e. learning how to make your available capital keep working for you] and understanding your own limits. On top of that... you have to have a clear idea why you are here and what your endpoints are. Another mistake I made when I first started was I knew none of that... picked up those insights along the way.
I have developed my own style... I think to be successful each person has to do that. If a person can not sit down and articulate to themselves in a conscious and concise manner what their own style is... then they are still, very definitely, on the learning curve and likely to lose more than they win. [Personally ... I attempt to understand the true value of something, I will then watch it for a long time and if I think I can see a catalyst which is going to make that value obvious to everyone else I will then commit some capital and buy. My goal is to end up with a modest cash profit (to try and steadily increase my working capital) and a free carry holding which becomes my long term investment]
No matter how hard I try ... I always go through some period when my capital is all tied up. That's not a worry if the basic investment decision is sound... the only loss is the opportunity cost. But it is a real issue if you are very wrong. I spent nearly 4 years locked up in SOC [now 4CE]... very long and torturous story, at one point down 99% [SP dropped from 20 cents to 0.2 cents] and I won't bore people with the details.... the point is, selling and taking the loss is sometimes the correct investment decision. You succeed in the market not by having a lot of money to play with but by making good decisions..... and the only way you learn to do that is by making mistakes and by accepting the risks.
The market has some aspects of gambling about it. The key to being a successful gambler is only betting when you know the odds are in your favour. There are those participating in the market who are dishonest .... they make sure the odds are in their favour by some form of manipulation [deceit, abuse of position and even outright fraud] ... and they are very happy to take another person down [usually thinking themselves very smart for being able to do so. I have encountered several individuals like this in the market over the years]. These people have their reward ... they frequently make money, sometimes even a fortune. But... it is a real feat to achieve success by honest means... it takes courage, effort, determination and self application. The rewards which come are not just financial success but success as a person. The greatest wealth is having self esteem, a well earned pride in oneself, in the actions one does and the choices one makes. The crooks know nothing about this ... all they get is the money [and the lifelong lingering doubts about their own self worth that goes with that path].
Successful speculating is about understanding what a thing is worth ... when you know that.... the odds are always in your favour.
Poster chipshuffler
link 30582760
As for the weekend topic personally I think there are plenty of mistakes that I have made that I see endless amounts of people making. I'll split the post into mistakes in trading and mistakes in financial money management in general.
Trading:
One thing I find strange is you see so many people say the right things on these weekend threads and their methods and psychology are brilliant, but then during the week you see the tips and check the threads they are posting in and it seems they contradict themselves entirely. Hopefully I don't fall into that same category but who knows just something i've noticed.
I think the most important takeaway and lesson that most go through is jumping into the hot thing rather than the next hot thing. The smart and successful investors that I have come across are always the ones getting themselves set early rather than chasing the current fads whilst letting the masses do the heavy lifting. Important to remember how critical it is as far as returns go of getting in early. If you buy into a stock at .7c and someone else buys in at 1c, it doesn't appear like a huge difference, but take for the sake of discussion that same stock runs to 5c, thats over 7 bags compared to 5. Big difference so don't chase them if they run up before you!
You hear posters on here talk about negativity on a stock thread being a positive as far as potential returns go and in my experience this is one of the best indicators you can find. The Hotcopper Feral Index. Find stocks that are hated by the market (maybe director's burnt holders in the past, discounted CR's to mates etc.) that have potential catalysts in the short term. It's amazing how quick the market can forget past troubles after a decent announcement. Take CHK for example they lost some of their cobalt leases and didn't inform the market immediately and the stock fell sharply (after declining for several months as one of the market darlings that fell from grace). The forums were filthy you couldn't make informed factual posts without being torched by the stale holders. Reality was it still had lithium + cobalt, was backed by the same team as NVA/QUR who were assessing new opportunities, and was trading at a $2m EV. Don't buy at the highs and become a stale holder at the lows selling out when the successful traders are buying your shares off you. Look for stocks that have basing charts at their lows with low EVs and potential short term catalysts.
Money management:
I'm lucky in the sense that I feel I have taught myself the importance of good money management from a young age seeking out the best direction and doing my homework when it seems most are out applying for credit cards in the meantime.
What I feel gets lost the most particularly in my generation is the separation of assets vs liabilities, something that being share traders and investors I feel we understand perhaps better than most. Too often people confuse liabilities with assets in the search for living a lifestyle that is clearly beyond their means. Take a mortgage for example; that is an asset on the banks balance sheet. Most will think by taking out a mortgage and having it secured is some kind of asset; its not its a major liability that puts most people in a 30 year scheduled debt trap and the bank as the owner of that debt is receiving interest doing nothing in return. Be the one receiving interest, dividends, capital gains etc., don't be the one stuck constantly paying interest on others' assets in a debt payment trap complaining about how the system is unfair; be responsible for your own financial decisions, a concept well and truly lost on my generation. I think personally just ensuring that your personal balance sheet is 100% assets and no liabilities is the best way to general and financial freedom.
Poster Lambre
link 30584470
Possibly the biggest thing that has surprised me about trading , is how much of a psychological game it is. Games are played on most days, in all time frames (at least on high volume stocks). Every single day, with a few exceptions, there will be an attempt to scare you out of your position (fear of loss), as well as an attempt to make you buy a stock that has moved up higher (fear of missing out), just before it goes back down again.
I used to look at all those big runs up on a chart, with all the consecutive green bars. These looked to me like the happy days, when you finally get a break, and trading becomes easy for a while. Little did I know, that those safe looking green bars, can be some of the scariest ones to be in. - Games are played. In order to not be emotionally manipulated by the market makers, you have to have a solid belief, in either your skills at assessing FA, in relation to tight time frames, or you need to have a solid belief in your TA set of rules. Otherwise the Market Maker will play you. All he has to do, is scare the wits out of you, and you jump. Study is my answer. It is where confidence comes from. And confidence is key in this game of "professional hot potato" (as someone else on here put it.)
Poster peejayhercules
link 30585580
How to lose money when you’re a newbie ... easy ... it’s almost like the pros can smell you a mile away.
I was warned to be careful about where to put stop losses. Well, I knew better. The textbooks showed me where to put my stop losses. Six times the pros dumped into the obvious stop loss spots, sucked up all the suckers shares, including mine, before the stock went on big runs.
I was in OVR when I was warned about a majority holder that had a history of getting inside information, then dumping his holdings and trashing the joint. But I knew better. Given the strong fundamentals this could not happen. I’d done my research. I think it took OVR almost a year, plus a change in management, to recover from that moron.
Cheer squads. Yeah, they all know better. Keep away from them.
Over researching a stock. If I researched a stock inside out and upside down until I knew everything about the stock, then I would know better. Never made any more money from this, in fact I got stuck in stocks that were accumulating, and I just kept researching. Nowadays when I’m in a stock I’m researching my butt off ... to find the next stock.
Never think you know more than the stupid market. The market is full of manipulators accumulating your darling stock, keeping its price low in the process. You’ll run out of patience before they do.
If a sector is cold, it’s cold. Doesn’t matter what you think you know.
Don’t think you know better because you know a bit of charting. The pros know a lot about charting. They know what the flock of sheep is likely to do next.
Don’t get caught in the TA / FA argument about what’s better. You need both to succeed. In fact you need as many weapons as you can. The odds are against you. Maybe the best balance is 80% FA, and 20% TA. Use TA to improve your buy price and your sell price. All the rest is a bit of a blur ... you actually won’t find too many Elliott Waves in the real world.
Volume ... volume, volume, volume. How critical it is. If you’re in an illiquid stock and it drops a pip or two, you’re down 10 to 20%. But still you get sucked in with the temptation of quick profits.
Learn to read a buy and sell queue. If the buy queue is massive and the sell queue is tiny, the stock might be about to go on a run. However, if the stock has been on a run the massive buy queue is giving holders the opportunity to cash in their profits.
The list is endless. Newbies think they know better. After two years back in the market, now I really do know a bit better. In two more years time I expect I will know a bit better too. In fact, you never stop learning in this game.
Poster RAllen
link 30591325
Great contributions so far– extremely informative for newbies (and non-newbies) into navigating the fine art of losing money (and occasionally making it). Thanks for all the Aussie hits too. Good way to while away the morning before the cricket one-dayer.
I am not a trader by any stretch of the imagination. I am a small-cap investor, that gets set early (and cheaply), co-invests with a cohort of investors I trust, and usually play with a multi-year horizon (or target price) on my positions. This has worked for me and this approach has taught me a thing or two so I wanted to add a few items to the ledger.
1. Learn how to read an announcement. Announcements are not ‘the truth’. They are a combination of marketing, spin and useful information. Consider that under the framework of continuous disclosure announcements are the lifeblood of small caps. Be wary of over-announcers and the exuberance of the HC community after each announcement.
Take your time, read an announcement two or three times, and try to see what they are really saying (and in many cases what they are not saying). Many have mentioned they have been misled by management. Often, the signals are throughout the announcements, it’s just that people hear what they want to hear, and then join a number of dots that aren’t there. I’ve seen this a lot with many companies recently (IAM, XPE, NOR, GSW to name a few).
2. Realise that most of the small cap companies are mediocre. If you play at the bottom end not all companies are the same – you really need the combination of good business, good value proposition, viable market, sound revenues, solid team, tangible growth plan to have a legitimate chance to get to a $300m MC and stay there (and hopefully appreciate further). Also, by being honest on the quality of a company may give you more insight into when to sell. You know the rise won’t last but you don’t want to be holding the can when it goes into a 2 year trading halt.
3. Information asymmetry. The people that make the real money are those that have an information advantage over other traders/investors. I’m not talking about insider trading but more about understanding a market, a roadmap, potential news-flow, what has historically happened when a specific broker gets attached to a company. If you can analyse a quarterly you are already ahead of 80% of the other punters. If you can read a quarterly and an announcement properly it is clear as day when a company is greasing the market for a cap raise. Many traders just trade on hope, you can win by just being aware and spotting opportunities that become clear.
Anyway, stay safe out there – and every dollar made or lost should teach you something so you are a better investor next time. It has for me.
Poster Nodferatu
link 30592972
Money management - the key to financial success. Whether in the market or outside of it, it really doesn't matter. If you can't manage your money well, you may as well give it to someone else.
I started in the market with $20k and no idea how to even buy or sell a stock on the market. Watched it double in about 3 months, then watched whilst dazed in the headlights as it tumbled down to virtually nothing by the 5 month. I knew nothing about the market or different trading/investing strategies. Hell I didn't even know trading was a 'thing'. I only knew of investing - conservative family. It was only whilst contemplating my failure and stewing on the fact that I hate losing in anything in life (regardless of what it is) that I thought to myself, if I had of sold on the 3rd month I would have had double my initial investment and then I could have bought something else to try keep the compounding going. Woila! I decided there and then that is what I will do going forward. Then I found out trading actually is a 'thing' and I wasn't so unique in coming up with this idea
Evolution has led myself to having much larger position sizes now than that of only a few years ago. Naturally, this leads to larger wins in dollar value, however, it also can also lead to much larger losses, in dollar value - even if using stop losses etc. For example, if using a similar stop strategy as previous - 10% of $1000 is a lot less than 10% of $50,000. $100 loss vs $5000 loss for the same 10% stop loss strategy. Obviously there a ways to combat this, small pilot buys, pyramid buying etc throughout an uptrend so that there is always a profit barrier should things start going pear shaped, tighter stops etc. Or whatever your strategy might be, there's always pros and con's to each method.
I much prefer to have 5 pyramid buys to total a $50k holding and lose a little potential profit along the way than to buy $50k in one hit as the immediate exposure to down-side risk is too high for my risk profile. Obviously the numbers you are comfortable will vary depending on ones financial situation, this is where psychology comes into it... you then need to learn a new skill that may not be anything to do with FA or TA education. The only way I've learnt what I am comfortable with (i.e position sizes/loss sizes) is to find out in the real world, make the mistakes myself and have read the occasional book. Still do make those mistakes, only a little less than I once did. Most recent doozy was AOU gap down on results - nature of the junior explorer beast sometimes. Suck it up and carry on is all you can do.
So as your financial situation increases, you also need to adapt your brain and emotions to be able to manage those larger figures too (if re-investing/trading profits into the market). When you're not a financial expert, this is easier said than done and one of the hardest things about 'the game' imo. It takes time, lots of experimentation and both success and failure along the way to find out what you are capable of. Me, I like doing things the hard way so best not to listen to me if you prefer to find success quicker than me.
Poster goggledog
link 30604333
How to lose money on the market?
Funnily enough, this is a subject I managed to master quite quickly early on in my career. Funny that! Here's a few tips for anyone with more $$$ than cents!
1. Suffering from Confirmation Bias - reassuring yourself that a losing stock will come good eventually and seeing everything through rose-coloured glasses. Often happens after being in a dog stock for an extended period of time.
2. Averaging down on losing stocks (chasing bad money with good money). This rarely ends well and is often a result of the aforementioned confirmation bias.
3. *Investing* in the spec market ... period!!! You might make a buck here and there trading specs, but more often than not, even the best stories come unstuck at some point. Very few specs succeed.
4. Believing anything management say (particularly with reference to specs). There's a lot of 'lifestyle' directors out there living the high life on huge salaries paid for by gullible investors.
5. Not understanding the mechanics of IPO's, capital raisings, shortfalls, underwriters, lead managers, P&D's, sophisticated/institutional investors, seed capital, stock spruikers, the use of HotCopper and Twitter, various publications and their affiliations with brokers ... etc. The market is full of sharks and a LOT of BS. Trust NO-ONE!
6. Buying stocks without doing enough research. I still get sucked in by hype or FOMO from time to time. It doesn't always end badly and the rewards can be fantastic, but it's a dangerous game to play and can turn south quickly.
7. Impatiently spending all your money buying a stock in one go as opposed to multiple orders spread over a price range.
8. Trading when tired, stressed, emotional etc. This ALWAYS leads to bad decisions.
On every point mentioned above, I can say ... been there, done that!
Poster Pisces
Links 30604963 30606142 30591097
I think the thing about rules and truisms , something I've seen a lot of on this thread over the weekend , are that they're absolutely fine for people with a normal amount of market experience who are trying to bring discipline to the way they invest or trade in stocks because they're probably not overly successful .
So whilst I agree in principle with the many ideas that have been thrown up , ironically I've had my biggest wins in the market when I've broken all those rules ,not just broken them ,smashed them.
They key to me is to know yourself . If you're not by nature a risk taker don't charge into the market taking risks . If you're not overly experienced don't do any of the dumb things you've been given examples of here by people who've learnt the hard way.
What one needs to remember is that the vast majority of stocks discussed on HC threads are speculative stocks . If you really know what you're doing and have some insight into what's happening in the company you don't need to worry about any rules . If you're just a trader working off a chart or what people are saying on blogs then you need to adhere to the usual disciplines reasonably stringently
What you need to know about hype Phil is that people are hyping it because they're already well and truly set and are just trying to get the stock up as high as they can so that their selling is made all the easier.
The A Team gets set as cheap as they possibly can with as many as they can and from that position it's not too hard to make money .
So when you see guys all over the place day after day , moment after moment, trying to convince you how fantastic something is ,it's not necessarily that it's not actually fantastic ,but their viewpoint is hopelessly compromised. In this market everything eventually goes up so people are just happy to jump on the train , this is an out of the ordinary market ,so just be aware that generally you're jumping into someone else's story a little bit further up the totem pole.
Now I know this because I'm one of those who doesn't bother with a stock unless I know I'm getting a great deal . And when I post on it you can bet that I'm in cheaper than when I post . But I also see guys who are doing the same thing who go all out to get some hype and lots of new devotees into the story . Not knocking them , that's the game , but always remember when you buy a stock off hype that other people knew about it well before there was any hype.
It doesn't matter how long you've been around ,how good you are ,how well informed you are and how disciplined you are you can always still do something stupid. The funny thing about mistakes in the market are that you really know in your heart that it's a mistake when you're doing it , the battle at the edges of fear and greed generally test the control of your emotions , the critical factor in rational decision making.
So you give yourself a slap shake your head at how stupid you were and get on with it.
Short term - knowledge library 4.0 start of colation, page-4
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