20 Things You Should Never Say About Trading
1. “This stock cannot go any higher”—greed and liquidity can create meltups/price appreciation for indeterminate periods of time
2. “This stock cannot go any lower”—fear, risk aversion, uncertainty and poor fundamentals can wreak havoc with any stock; no stock is bulletproof
3. “There is no risk in this trade; I am telling you--it’s easy money”—you can diversify away unsystematic risk, but systematic risk is a fixture.
4. “The market indexes will NEVER reach their old highs”—we heard this after the crashes of 1929, 1987, 2001, etc….
5. “When the fundamentals turn in the market, then I will buy”—stock prices turn long before the fundamentals do because they are a discounting mechanism
6. “If I buy a penny stock, no worries ‘cause I can always exit in a hurry”—lack of liquidity can leave a trader “hung-out-to-dry. “
7. “Market bottoms are always earmarked by furious capitulatory selling action”—some bear markets just slide progressively into oblivion before hitting rock bottom, e.g. 1974, 2008.
8. “As a result of the recent market price action spiral I am NEVER going to trade from the long side ever again—trends eventually reverse, and sometimes for years.
9. “I will NEVER buy the financial sector ever again”—the financials are backbone of the credit markets; they have broken down before and returned to glory again and again.
10. “The technical indicators on this charting package are “wrong” versus those of other charting packages”—charting packages are a function of their throughput data and formula configurations.
11. “It will take years before investors come back to trade the market after the crash we suffered”—the appetite for greed moves in cycles; once upward momentum is reestablished traders typically chase performance.
12. “It’s impossible to consistently make money day-trading”—there are over 500,000 full-time professional day-traders in the US, and many have been doing it successfully for over 20 years.
13. “We will NEVER see a market crash like this again”—if there is one thing that is proven consistent is that history tends to repeat itself
14. “I am NEVER going to trade the stock market again because it is too irrational”—irrational behavior creates mispriced assets which affords capital trading opportunities.
15. “The VIX will NEVER go down to the levels we saw in previous years as a result of the recent Crash—history has shown that periods of extended high volatility are followed by periods of extended low volatility, and vice-versa.
16. “Insider selling is the primary reason I am bailing out of my stock position”—insiders are notoriously poor market-timers and often sell as a consequence of pre-determined stock sale plans.
17. “If an acclaimed investor says he is buying a particular stock then I should always buy, too”—acclaimed investors are typically poor market-timers and make mistakes like the rest of us.
18. “Trading overseas markets is always riskier than trading the U.S. market”—market risk is a function of liquidity, asset values, regulatory standards, geopolitical stability, and economic infrastructure.
19. “I am a purely technical trader—I don’t need to worry about fundamentals”—fundamentals and expectations are the true driving forces behind markets, whereas technical analysis is backward-looking.
- “I am NEVER trading options because high profile, television market pundits claim they are too risky”—applied wisely, options can be a low-cost form of portfolio insurance or speculative vehicle.
0 comments:
Post a Comment