Avoiding Unspeakable Share Trade Errors
By Ultimate Trading
How To Avoid The Most Common Share Trade Errors
Nobody thinks it could happen to them. Having your investments wiped
out with a bad
share trade. Losing profits that should have been yours. But
these things happen all the time, and they can be easily avoided.
But first, lets look at some worst-case scenarios. Here are two
examples of what can happen when you least expect it, and how things
can be worse, much worse, than you could have predicted. Keep in
mind the following examples are based upon actual NYSE market share
trade events during March and April 2000:
Celera Genomics (CRA). Their share trade value dropped 70% in only
four weeks, helped by a statement by Bill Clinton and Tony Blair on
March 14, 2000, favouring free access to human genome sequences and
calling on genomics researchers to make their data freely available.
Celera's business plan was to make money through patents on its
Microstrategy Inc. (MSTR). Their share trade value dropped 60% in
only one day after announcing that its quarterly results wouldn't
meet analysts' estimates. Changed accounting methods, or accurate
accounting, had forced it to restate revenues and operating results.
The same day, it changed its 1999 full-year results from a profit of
15 cents per share to a loss of up to 51 cents per share.
Such volatility is common in today's share trade markets. This
should be an obvious statement to make, everyone should know this.
But many traders assume the volatility wont affect their positions.
This is the kind of thinking that leads people to make a share trade
on margin and then lose their entire investment when the unexpected
occurs, as it always will.
Sudden crashes aren't the only kind of stock market disaster.
There's also the horror of a slow, grinding ride down over a period
of weeks and months. Look at the chart for just about any technology
or dot-com stock between spring 2000 and spring 2001 and you'll see
losses of 50%, 75%, and even 90%. Some charts won't even be
available because the companies have gone out of business. The only
people who'll remember their share trade is the ones who lost their
entire investment (or much of it) because they never knew when to
get out. They didn't have a plan to exit at a certain point to limit
Losing the money you put into a share trade isn't the only kind of
disaster. There's another one: making a great share trade, running
up a nice paper profit, and then watching it slip away until you
actually start to lose money on the share trade. Think this can
never happen to you?
Heres an example: A trader enters a $10,000 position and watches it
double in price in only three days. He's made $10,000 off a share
trade in three days, and he's ecstatic. The position then weakens
and falls a little, but he doesn't want to sell it yet. He thinks,
What if it turns around and goes up another 50 percent? That would
be worth another $5,000. So he holds, hoping the position will
recover and continue rising. He holds and it drops, and he thinks
about how much he wants his profit back, and he holds and finally
ends up losing money on what had been a very profitable share trade.
This should never happen, but it does all the time.
These are unspeakable errors, losing your capital and losing your
profits, and they are completely avoidable. All you need to do is
set stops. Set stop-loss orders on every
and move to trailing stops when a share trade becomes profitable.
You protect your capital and lock in your profits. And then you can
truly say, you will never make these mistakes.
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