Causes Of Failure In Stock Trading
Penny stocks have been growing in popularity in recent years
. In the past, it was considered as bad, but changes in the law and the way the stock exchanges work has created hope among investors. Penny stocks can make someone rich. At the same time it can also make one poor. People lose a lot of money because of market crash. Although a lot is out of investors" control, there are still instruction that can be learned when you experience a market downturn.
Liquidity
When penny stocks lack much liquidity, it leads to two problems: first, there is the possibility that you won't be able to sell the stock, because it may be hard to find a buyer for a particular stock, and you may have to lower your price. Second, low liquidity levels provide opportunities for some traders to manipulate stock prices. They buy large amounts of stock, hype it up and then sell it after other investors find it attractive.
Inability to cut losses
Day trading brings 2 or 3 point gain. So the trader gets excited to book small profits quickly. But when any one of their stock holdings drops 5 points: the same traders find themselves unable to cut losses rapidly, so they wait for a rebound. In fact, even when their stocks drop by larger points, the majority short term investors become hesitant to book losses. A 20% loss on a single position wipes out the profits that a trader makes on 10 winning transactions, each returning 2% gains.
Entirely selling a winner
When someone makes a profit, it's only usual to want to sell and take that profit elsewhere. On the other hand, a lot of guys look at their losses and cling to them in suspense they'll regain to even. The above plan actually makes you close to loss and far from win.
Long term growth
It"s likely to have the ability to hold on to a stock long enough, it may just bounce back. There"s opportunity cost here.
Prejudiced Recommendations
There are a number of micro cap companies that pay individuals to publicize the company stock in different media, like newsletters, financial television and radio shows. You may receive spam email trying to persuade you to purchase particular stock. If the investor get influenced by them and invest in those companies it can bring much loss to them. Ensure that any press releases aren't given falsely by people looking to influence the price of a stock.
Lack of knowledge when to sell
It is one of the most important thing to learn how to cut your losses. A cost basis shows whether you"ve made money or lost money on a stock. If the current value of your portfolio shows that you have lost money and it looks like it may drop further, it"s time to take losses. You really don"t want to lose more than you can bargain for. Many investors decided to hold last year when they shouldn"t have and were wiped out.
Blindly following a broker
It is good to take the help of a broker to know the company information. But it is not wise act to follow his words blindly. You can make your own research work. You should listen to your broker. But you should also question him. Because at his core, he's a salesman, so he's trying to sell you something. Press him on details. Why is this stock the next great stock? Did he invest his own money in it?
Learning how to "trade" during a bull run
The majority ordinary traders are bitten by the stock market bug during bull markets. They purchase inflated stocks at peak prices, pursuing penny stocks at higher and higher prices while riding the upward momentum of the bull. They buy stocks indiscriminately, without regard to stock fundamentals, quality or price. As a result they suffer later on.
To know more about penny stocks,visit us at:
http://www.pennyinvest.com/by: AltonDelmote
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