By James Woolley
There are many people out there who invest their own money into the stock market. However a lot of these people will ultimately lose money and end up handing over control to a fund manager. The main reason why people fail is simply because they do not have the patience to wait for the very best entry and exit points.
There are plenty of examples of this. First of all there are often occasions when you do some research and you suddenly find a stock that looks hugely undervalued. Now some people will then rush out and buy the stock regardless of it’s current price. They may get lucky and the price may continue rising, but in most instances they would have been better off waiting for the stock to be temporarily oversold, for example when the RSI technical indicator is below 30.
Another example of a poor investing technique is when an investor will find a decent stock that goes up in value, but sells far too early. For example you may have set a target of 20%, which you think is perfectly realistic in the next few years, but you are so happy to see a profit you sell your holding after it has risen just 5%.
Lots of investors sell too early, and one of the common reasons why they do so is if they are fully invested and want to free up some cash so they can invest in another stock. This is a good tactic if you have money tied up in stocks that are simply going nowhere, or falling slightly, but it is quite a risky strategy if you sell stocks that are already performing strongly themselves.
Another area in which investors can come unstuck is when they use technical analysis to time their entry and exit points. For instance if you are a long-term investor, you have to try and ignore technical indicators because they will often tell you a stock is overbought, and therefore encourage you to sell. This is fine if you are trading in and out of stocks all the time, but if you want to hold on for the really big gains, you have to ignore them and think about where the share price will be in a couple of years time.
If you are a short or medium-term investor you can also come unstuck if you ignore your technical indicators. For example if you are trading breakouts, it is imperative that you wait for confirmation of an actual breakout, rather than anticipating a breakout in the hope of getting in at a better price. If you don’t, you will have invested in stocks right at the top of the market.
So the message I want to get across is that you have to have a great deal of patience if you want to be a successful stock market investor. You only have to look at Warren Buffett for evidence of this. He holds on to stocks for years and years and he is one of the greatest investors of all time.
About the Author
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