We hear so many things from the stock market and how to trade that many investors are getting confused. I’ve completed some research and picked a few good lines to keep in mind when you trade stocks. Some must be followed religiously; others may be taken lightly:
The trend is your friend
This quote comes from momentum traders. According to them, one must not try to go against the market trend. In doing so, one will probably buy too high or sell too low. The problem is that you can only surf the trend for so long. One day or another, the trend will change and you will hit the wall…
Sell in May and Go Away
According to statistics, there is less profit to be made during the summer months on the stock market. Theory being that many investors sell their stocks at the end of spring and reinvest in the stock market in the fall. I’ve already given my opinion on this one by telling you not to sell in May and to avoid the market timing methodology.
The more certain the crowd is, the surer it is to be wrong
This explains how the stock market can be psychotic. When everybody is convinced of something, chances are that they are completely wrong. There is a psychological concept that describes when a group of people agree on one point, it is almost impossible to change their minds as they convince each other the “group” is right. This is the perfect indicator that when everybody sells, this is probably the right time to buy 😉
Occasionally, successful investing requires inactivity. (Warren Buffett)
Patience is king when you want to make serious money on the stock market. When Canadian Bank stocks were dropping faster than rain, was there any rationale to it? Nope. So being patient with these stocks was the right approach. If you did sell them back in December, I suggest you don’t look at them today… it might ruin your day!
Don’t marry your stocks
One must not fall in love with his holdings. The market doesn’t care if you love a company. Therefore, you might see your “favourite” stocks plunging because advantages in their fundamental characteristics are not there anymore.
Price is king, but volume is the power behind the price.
The price of a stock is really important as it will determine your profit or loss. However, if there is no volume, the price is subject to wild fluctuations. While I don’t think it affects general trends (i.e. when the market went up from March to June, it wasn’t just a high volume of transactions), I do think this is applicable for small caps and penny stocks. It is pretty hard to determine the fair value of a stock that jumps and plummets by 10% weekly. This is what happens when there is minimal volume to support a price and few makers in its market.
I actually have more quotes, so I’ll keep a few for tomorrow 😉
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