Don’t Trade Stocks Until You Understand This
There was a point where I was in college and wanted to make my own money. Not the “getting a job at the local barista” type of of money. I wanted REAL money. Why did I want the money? I wanted it for the reason most college kids do, to spend it on items and things that would’t matter in 5 years. If I wanted to start a savings, donate, give to a church mission, or even to finance another business then things may have turned out differently for me when I approached the risky business of penny stocks and stock options. It would have turned out differently because greed wouldn’t have been my main source of motivation.
Anyone familiar with penny stocks and stock options knows why they appeal to the more inexperienced crowd:
- You don’t need a lot of money to make money
- You can make a lot of money FAST
The problem is that I didn’t learn the third and fourth points. Fear and greed are the enemies and the stock market is not designed for everyone to win. Someone has to lose, every single time. Market makers are experts in creating the emotions in the market that will cause you and me to make bad decisions from our emotions. Over time I realized that when the media would say it’s a seller’s market or a buyer’s market that those statements didn’t make sense. Someone has to buy what the other is selling. The lifelong mission is trying to be on the right side at the right time.
Emotions are what make life exciting. Emotions also will make you blow your account when it comes to trading. Becoming detached from money solves a lot of issues but it is the most difficult thing. I wanted to buy some nice things and to do that I needed big money man! The danger is it’s natural for people new to the market to do well at first. Mainly because they don’t have anything to be afraid of since they don’t even know what to be afraid of. Since they aren’t afraid and aren’t super attached to the money, they make some initial wins. They may even think “Wow, this is easy! If I do this 10 more times I’ll be a millionaire.” It’s funny to read that but that’s how I thought at one time.
I made some wins and instead of withdrawing some of my winnings and saving, I got greedy. I doubled, tripled down on my initial buy ins and before I knew it I had lost 5 figures in the matter of a week. I should mention that I started with less than $1,000. I went through this process 3 times and still didn’t learn my lesson! That’s how strong greed and fear can be and Mr. Market knows it. He will use that to his advantage. It took me forever to realize that instinct will not lie to you but emotions will. Even in day to day life we all know our gut feeling has helped us way more than our emotions.
Instinct is like that loyal dog that just loves you no matter what. Every single day when you get home, instinct’s tail is wagging and happy to see you. Emotion is like the strange coworker. You know you have to deal with it everyday but understand it can throw you under the bus in a heartbeat.
Everyone Can’t Win
The last point I had to realize was that somebody has to lose on every trade. The chances of me losing increase when I follow the crowd or do what everyone else is doing. In every aspect of life I have to make my own decisions not being concerned with what everyone else is doing. When the market is selling off and everyone is freaking the hell out, emotion will kick in and tell me maybe it’s too dangerous to buy. Instinct will tell me differently. If everyone is buying and yelling “To da moon!”, emotion will kick in and tell me to put all my savings in because it’s time to get rich. Instinct will tell me differently. Instinct and calmness are your friends. The market and emotions don’t care about you.
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