The point of Trading Stocks is to make Money but it does not always work out that way. The famous investor, Warren Buffett, said that the first rule of investing is not to Lose Money and the second rule is to remember the first rule. Stock traders would be wise to remember Buffets two rules. One way to avoid losing money is to look at how to Lose Money Trading stocks and avoid each and every way. Here are a few thoughts on how to lose money trading stocks.
Not a Trip to the Casino
Fast paced day trading using technical analysis tools can be very profitable and it can become addicting. How to lose money trading stocks is to get addicted to the very act of day trading. It is not the fast pace or the rapidity of profits that makes day trading successful. It is sound knowledge of statistically accurate trading signals and the skill to trade appropriately when these signals arise. There are days when the market is volatile and a skilled trader can make a lot of money and there are slow days when one would do better to go for a walk or take in a baseball game at the park. When trading becomes addicting traders follow the wrong cues and lose money. Trading need not become a random act but rather is profitable when traders follow a plan.
Fear, Greed and Losses
The twin demons of the markets are fear and greed. Years ago we wrote about fear, greed and investing.
Greed and fear are the twin demons of investing. Their antidotes are sound fundamental and technical analysis. The fact of the matter is that many investors get greedy and forget to do or follow the results of their fundamental and technical analysis.
Smart and prepared traders make money when markets are volatile and especially when they are rising for falling rapidly. This is become the average investor gets greedy and buys in just before the market tops out or panics and sells just as the market hits bottom. Smart investors watch and trade dispassionately, earning profits as other investors and traders lose they money.
Trade What You Know
It is all too easy to try to cash in on a trading tip and lose money in the process. Traders who make money in swing trading study a handful of stocks and spot those likely to make a big move up or down. They wait patiently and execute their trade according to a well devised plan. Those who simply believe that all tips are sound advice typically lose out. There is a reason why traders stick to specific market sectors or specific stocks and avoid trading companies or ETFs with which they are not familiar.
Unique Insights
We wrote recently about foreign stocks and trading them with American Depositary Receipts. To the extent that you have unique insights into a foreign market or a foreign currency it can be very profitable to trade offshore stocks or Forex currency pairs. As always do your homework before trading, avoid being driven by fear or greed and remember that your trade station is not a slot machine at the casino.
