In a volatile market, it is a trader’s market and not an investor’s market. If you hold positions too long, you lose a lot of your portfolio amount and you never know when the rebound comes back. There will be a few days of up trends thinking this is already the turn around point, but it isn’t. And if you decide to just hold your stocks and wait for the turn around which will eventually happen, you may have lost too much already that you will just be winning back what you lost and not earn more. But in a trader’s mentality, you have to be nimble and on your toes to make trades when they should happen.
Mistake/Lesson #1: Invest the time to plan your trades
I do have a watchlist of stocks. But even that watchlist is not planned well. I should plan based on different scenarios of market movements, so I can react properly as the stocks move. If the direction does not go my way, what is my secondary plan? This past week I didn’t have back up plans when things go wrong. I just assumed things would go my way as how I wanted them.
Mistake/Lesson #2: Don’t scramble to buy stocks at the last minute
The past week, when I suddenly see an up day in the market developing, starting with those doji‘s and dragonflies, then a few higher highs and higher lows, I tend to urgently scramble thinking I am going to miss the bus without good planning. What makes a good trade is good analysis, and good analysis takes more time, especially for a novice like me.
Mistake/Lesson #3: Avoid the emotional urge to buy a stock just because you are not trading
There is a buy position, a sell position, a hold position, and there is also a cash position.. Staying in a cash position preserves your money from losing it. If there is no good analysis, there is a larger risk to lose the money.
Mistake/Lesson #4: Always apply stop losses in a volatile market
There are some companies that are really safer than others, more stable, has more predictable earnings, and has a track history of performing well in the market, but if you do not have a lot of funds, and is somewhat on a budget, and you need money to spend short term and cannot stay in a hold position for a long period, you will just lose money for every downtrend. Even if it goes back up, you are just earning back what you lost. Net effect, you didn’t earn anything, you lost time and time also has a value in all of our lives. In general it is a loss.
Mistake/Lesson #5: Be aware of your account balance
As I make a trade, and looking through my watchlist of stocks to buy, but lacks the planning ahead of time, combined with the mistakes/lessons 1, 2 & 3 above, I don’t even know the right amounts of stocks to buy on the day of my trade, I sometimes just input numbers and see if my broker account gives an error or not saying I have enough funds or not. I did not necessarily do the math where I sometimes wing it in favor of the notion that an uptrend is coming and it will end up in the positive.
Mistake/Lesson #6 Do not buy with unsettled funds
Because of mistake/lesson #5 just making orders and see what pushes through, together with mistake/lesson #3, I accidentally purchased some stocks with unsettled funds. I did this with 2 contra ETFs. And it rose quickly as the market was plunging early in the day on Wednesday and it felt great at first as my portfolio value grew, then a turnaround happened and the 5-day high was reached on that day, where I lost #114. I couldn’t sell the stock I owned to get out, it would not accept my trailing stop settings because when you buy stock with unsettled funds, you need to hold it for a minimum of 3-days, the same time the funds get settled. Then more tragedy happens since I am stuck there where by Friday, the market rose and my loss went up to $229.50. Although the overall long term trend of the market is still bearish, the daily movement still makes wild swings, and I am just getting out to avoid more losses.
Mistake/Lesson #7 If you can’t be nimble, don’t trade on a volatile market
Since a volatile market makes wild up trend and down trend swings, you need to have the ability to identify swing changes early, get in, get out early also. Just looking at all the indicators, I know I can identify these too, but that does not mean I can look at them every minute of the day. I am still early in this stock trading industry. I do have a day job, I have a family, children that go to school early in the morning, and also living with my in-laws who need assistance especially recovering from a mild stroke the previous week. I am not glued to the market, and when it is volatile, 30 minute to an hour is a long time and you can lose hundreds to thousands. Fortunately it is just hundreds for me, but everything is relative, I don’t have a large stock portfolio and is still playing around in the 4-digits so a 3-digit loss is big to me.
Mistake/Lesson #8 If you can’t be nimble for a day, then trade the week
Earning from a volatile market can be rewarding, since those large swings can mean large wins also, but it can also be large losses. If you do not have the time to monitor it well, and take appropriate action at the right time, might as well look at weekly trends or monthly trends and look at look for less volatile stocks in the volatile market. This makes it less stressful and easier manage if you cannot devote a whole day trading.