subject: Investors Suck At Investing [print this page] Investors Suck At Investing Investors Suck At Investing
Typical traders lose money trading. Here is a partial list of the issues they possess and how to fix them.
1) They cannot take profits.
2) They have trouble taking losses.
3) They hold back too long to insure that the trend is in place, only to get in just in time for a pullback.
4) They lose two times in a row, and don't take the next trade - as a result, they fail to recognize the big move.
5) They trade stocks and don't take into account factors that can influence the stock's price.
6) They presume that "buy and hold" works.
7) They go long a bear market.
8) They go short a bull market.
9) They invest too much of their capital in a single stock or trade.
10) Investors, generally, are much too influenced by emotion. This article gives you a financial market timing systematic process for the S&P 500. The S&P 500 represents 500 stocks, as you probably realize. Since the S&P 500 is an index and isn't traded, you will need to trade the ETF called SPX. The SPX which represents the S&P 500 moves smoothly, and normally unexcitedly. Unless you are highly accurate with your trade entries and exits, you doubtless won't make much money trading SPX in the short or intermediate term. You need a set of tools, or at least a number of principles. Continue reading, and you will have these principles.Because the SPX represents 500 stocks, you won't see the extreme moves you might expect if you own an individual stock. If you have traded stocks, you know that they are much more volatile. If the CEO gets perp walked away in manacles, if the company under-performs, or their drug doesn't get authorized, expect enormous movements in that stock price If you own an individual stock through its earnings announcement, you very likely will be astonished by the extent and intensity of the move - commonly against you, it seems.. You won't have to worry about earnings announcements, if you trade SPX. There are so many stocks represented by the SPX, the earnings announcements effects are reduced or eliminated. Tools to use to trade SPX:Leveraged ETFs Many people don't think you can profit trading SPX in the short term or intermediate term. You must have a long-term horizon, or use leverage. Leverage can be provided by trading options on SPX, or, a much simpler method is to trade leveraged ETFs like SSO and SDS. SSO is the 2X bullish leveraged ETF and SDS is the 2X bearish ETF. With a leveraged ETF like SSO, a 5% move in SPX gives you approximately a 10% move in SSO. You can trade the bearish ETF, SDS, if you want to profit from a descending market - even in your IRA account. Money management You will need to employ money management if you want to gain from trading SPX. In fact, you will need money management if you want to trade any stock, option or ETF. Here is a tested, manageable money management technique that works very well. It is based on the movement of SPX. The money management or if you prefer, risk management method, is relatively simple: When SPX has moved in your direction by 5%, you sell 25% of the shares you hold. If you get another 5% move in your direction, sell one-half your remaining shares. Sometimes SPX will move 15%, in your direction. This is rare, but it has been happening. This has been occuring more frequently since the Federal Reserve has been practicing quantitative easing, QE1 and QE2. Many experts think quantitative easing has accounted for the current, constant rise in the stock market. You must resist your greed! If you don't take profits when become available, they will very likely evaporate from you. If you have been trading for a good amount of time, I am sure you will agree with me that It is difficult to take profits - we are all so greedy. I would guesstimate that you have lost money on a marvelous trade that unexpectedly turned around on you. Use a Market timer How do you predict what the market is going to do? A market timing service is your best weapon. Humans are especially poor at predicting which way the stock market is likely to move. Even people who have been trading for years, find that employing a market timing system makes a big difference in the results. Leap of faith Using any market timing service is difficult. Traders can look at the actual performance results of a timer and still think that they can do better. If you have trouble following a market timing service, then make your trades smaller. Ultimately, you will gain the fearlessness you need to trade larger amounts of your equity. By the way, I have met very few humans who can persistently out-perform a legitimate market timing service. Traders are much too emotional. To summarize: Don't trade individual stocks. Trade a leveraged ETF representing a broad-based index, to bring about diversification. Use a money management method. Subscribe to a market timing service. Get control of your feelings so that you can follow the timer. Utilizing these tips will improve in your success at the trading game.
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