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What Shares to Buy
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One of the most obvious dilemmas facing most people when they first start out in stock market trading is "what shares to buy".
When it comes to trading, there seems to be no end of ways that people use for their share selection process.
And you want to know the exciting news?
Knowing what shares to buy is really the smallest part of the overall picture. Yet, most people focus their entire time, money, and energy on this single aspect, without any real idea of its impact on their trading success or failure.
Most people when first starting out, make the assumption that buying the right share is all that matters. Kind of like picking the winning lottery ticket, or the winning horse at the races. You see, they start out with a "gamblers mentality", and as a result, place too much emphasis on what shares to buy, rather than when to buy, when to sell, and how many to buy or sell.
Many marketing gurus have cottoned on to this, and offer all sorts of "winning stock selection" programs, software, subscriptions, newsletters, and anything else that plenty of people are willing to fall for in search of the "quick buck"
Trader with a gamblers mentality are out to find that one big winner that will set them up for life.
While this can happen, and sometimes does, you are much better off taking small but consistent profits from a number of trades, than trying to take a large profit
from one single trade.
People wrongly believe that if they buy a system, or subscribe to a tipping service that constantly produces potential
winners that they will make money. But as we have already seen, this is only really part of the overall picture.
Example:
Even if you had a system which produced 80% winners and only 20% losers, you could still lose money if you didn’t control
the rest of the variables.
There are still two critical factors that most people don’t generally consider when new to trading.
1: How many should you buy?
Let’s look at what a typical new trader would do when first entering the market.
We’ll do so by following an example trade of Mr average trader whom we shall call John.
John has just subscribed to a hot-stock tipping service who have published some pretty impressive past results of 80% winners.
They have just emailed him his very first tip. It tells him to buy XYZ company.
The shares are currently trading at $5.00 each, but are tipped to be $8.00 per share within the next couple of weeks.
Obviously they don’t tell him how many he should buy, that’s his business.
John can’t wait and rushes straight in. He currently has $5,000 to trade with, and figures that since this tipping service has such a great past track
record of picking 80% winners, how can he possibly lose?
So John calls his broker and instructs him to buy 1,000 XYZ shares at $5.00 each.
Eagerly, John checks his stocks each day, only instead of going up, they go down. Unfortunately for John, his first trade wasn’t one of the 80%
winners, but one of the 20% losers. He is now stuck in a bad trade and doesn’t know what to do.
He has no control, and didn’t consider the possibility of this trade not going in his favor.
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After 1 month John can’t bear to look at the charts anymore.
His $5,000 is now only worth $1,500.
He calls his broker and instructs him to sell. John has just lost $3,500 on his first trade, and now only has $1,500 left in his account to trade with. |
This first trade didn’t go as expected, (this was one of the 20% not the 80%)
The trade that was meant to go from $5.00 up to $8.00 or better, actually ended up falling to just $1.50!
This may have been John’s very first trade, or it may have been three or four trades into his career. The fact of the matter is simple.
Even with an 80% success rate for picking winning stocks, there are still going to be losing trades.
Not knowing how to deal with these losing trades is what causes most people to lose money on the stock market, and eventually give up,
believing that making money is impossible.
Of course the next four trades that John’s tipping newsletter sends him are all winners. However, badly burnt from his first bad experience,
John is very scared and doesn’t actually take the next few trades, but rather is just sitting on the sidelines wondering what to do next.
Plus, with an account balance of just $1,500 it’s going to take John a very long time to recover and to just get his bank account back to breaking even.
Handling a losing streak
The second problem that John hasn’t taken into account is, how is he going to deal with a losing streak?
What say he was given four or five bad trades in a row? Sure he may have had four or five goods trades previously,
but the next few could break him if he’s not expecting it. A few bad trades in a row could badly deplete his bank account, or possibly wipe it out all together.
John has given no thought or consideration whatsoever to this aspect, and like most people, has just jumped straight into the stock market without
first learning the rules.
Learn what shares to buy, and how to manage your trades the right way
If you would like my free info pack sent to you, then simply click on the link to the right of this page, which will take you to the free signup page.
Or else, click on this link here What Shares to Buy
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