As I’m writing this blog, I have also taken a brief time to look for the definition of investment. According to investopedia, “investment is an asset that is purchased with the hope that it will generate income or will appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth”. So the very nature of investing is to expect for a good return. I have never met a person who have invested his money and never expect a return.
Nowadays, with so much noise of the telco stocks ( we are still anticipating the third telco player to be operational in the Philippines) and other high-gainers that are getting noticeable each day, many Filipinos have gone interested into putting their money in.
Is it wise to go all-in?
I have spoken to many people for the past few days and others were even telling me that they have already invested most of their money all-in on these stocks. The problem is, they are just new in investing and they have only made their decision based on a misleading news or if not it is coming from a person who are just hyping the stock.
By the way, hyping, is very prevalent in the stock market and many people have already turned their backs from the stock market because they’ve lose huge money. For those who gambled in the market, they have already met their fateful end. As a matter of fact, I haven’t seen those people who have treated it that way.
So what is wrong with chasing returns?
Chasing investment returns refers to switching from an average performing stock into one that has an excellent recent return (high-flyer). There are a few problems with this investment strategy:
1. “Hot” stocks don’t usually stay hot. In fact they usually come crashing back to earth shortly after you buy them.
2. Stocks that aren’t doing well can make a comeback. If you sell them too soon, you might miss-out on any recovery.
There is nothing wrong with buying and selling stocks if you have a solid trading plan and make your buys and sells based on that plan. The worst type of trading is to buy stocks after they have gone way-up and then sell them after they have dropped. This is also known as “buying on greed” and “selling on fear“.
Risk management is still very important and it is something to take very seriously. If you don’t know how to set-up stop loss and a trailing stop while trading a third-liner or a penny stock like NOW, MRC, WEB, HVN, and PXP, it is a matter of time that you will experience big losses.
The reason why I am still trading stocks in the stock market for couple of years is that I keep the discipline on following my trading strategy. I see to it that I’m not only after the return but I keep an eye for the consistent return. That is the art of trading!
Learn to test a combination of indicators and price action analysis so that you would know when is the proper time to buy and sell stocks; such as support and resistance, basic candlestick patterns, RSI, MACD, and Moving average . Using Technical Analysis would keep you from the danger of big losses on the fear of missing-out. Some people hopped-in to a trending stock on a pure speculation (wild guess) only to find-out that after buying, sell-off happened. I don’t want you to go that route.
If you want to know more on how to do trend following and to do Momentum trading, you can read this blog: The Power of Parabolic Play: Trading the Momentum. I combined sophisticated indicators like Ichimoku Kinko Hyo, Parabolic stop and reverse and Directional Movement Index. It works very well for me and I hope it will do wonders for you too.
Are you having hard time choosing a potential stock with a promising return? Learn the CANSLIM way. Read this blog: HOW TO MAKE MONEY IN STOCKS: FOLLOW THESE 7 SIMPLE TIPS.
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