The stock market is a fickle playground – entire life savings can be gained and lost in the space of a day – but despite its turbulent nature, there are some things that you should just not do if you’re looking to emerge unscathed from the financial battlefield. These are ways you could ruin your portfolio and all your investments with disastrous ease, and have ended many a career over the years. Here are six losing strategies for stock traders.
1. Risking Too Much
It’s tempting to think of the stock market as the world’s biggest game of poker, and in some ways it is. However, for inexperienced or desperate traders looking to get rich quick, the temptation to go ‘all in’ is a double-edged sword. The rewards are indeed greater the more you risk, but putting everything on the line is guaranteed to make you a loser sooner rather than later.
2. Not Diversifying Your Portfolio
Only a novice or short-sighted trader would not think about spreading his or her portfolio across multiple investments. There’s really no reason not to do it – diversifying your portfolio means that even if one of your stocks tanks, others will either be stable, or rise themselves. And every stock will inevitably dip, meaning that if you put all your eggs in one basket, you run the risk of losing every single egg.
3. Putting Money Above A Trading Plan
Every trader worth his or her salt will have a trading plan, but sometimes things happen that open the possibility to going off script, as it were. Even if it’s a serendipitous turn of events – you make money despite what your plan says – don’t take the bait. Stick to your plan, instead of what was a lucky series of events that ended up making you money. Lightning doesn’t strike twice, and you will lose valuable time and investments if you go chasing for luck. This may be a new era of trading, but the stock market is a dangerous place to innovate.
4. Getting Emotional
It’s understandable to get worked up over trading. This is a lot of money we’re talking about, and a lot of hard work to get this far. However, like putting money above a trading plan, following your emotions will not work more than once, if it works at all. Trading requires a level head and a clear strategy. Getting carried away by your own success or imagination will run you into the ground.
5. Investing Personal Money
Stock trading requires sacrifice, and if you’ve made it this far, you’re well aware of that. But if your trading calls on you to start cutting away pieces of your life because you can’t afford to trade otherwise, then you’re trading for the wrong reasons. Set aside some percentage of your money for trading, but if you find yourself selling your car, remortgaging on your home and leaving your spouse because they don’t want you cutting into your savings for stocks, then it’s time to step away.
A bad trader is under the impression that he or she always has to buy or sell stock to stay in the game. Like poker, however, it’s possible – and sometimes advisable – to wait before committing. You don’t have to always do something to make money. Sometimes a little caution, keeping an eye on what others are doing (or not doing) without showing your cards too early will serve you much better than assuming that it’s buy, sell or nothing.