Investing is the key to building long-term wealth, but it only works when your trades are bringing in cash.
If you’re frustrated with the results you’re seeing in your portfolio, you should take some time to figure out why and how things could be going wrong. There’s a good chance that some of the issues are laid out below, so read on.
You’re not doing your research
Never buy something without researching it — especially stocks. You wouldn’t head to the car dealership without doing research on new makes and models of vehicles, so why would you buy a share of a company without knowing everything that you can about it?
One of the biggest mistakes that investors make is when they invest based on their gut feelings and general ideas about companies. They think “tech companies” are on the rise, or they like the idea behind some company’s product.
That’s all well and good, but if you’re buying stock, you need to know more about the business side of the business: P/E ratios, free cash flow, and all the other dollars and cents stuff.
You’re not using a consistent strategy
When you’re an active stock trader, you need to stay consistent and stay organized. Stock trading isn’t like gambling (or at least, it shouldn’t be).
You should be leveraging the knowledge and research that we just talked about. You should be spotting every cypher pattern and calculating momentum swings. And you should be applying all of this to a strategy that you’ve tested in simulators and believe will work consistently.
Your strategy needs to be unified and consistent. Don’t play around with multiple strategies — with different goals to choose from, you’ll end up going with your gut. Your decisions on the market should eventually be almost automatic, because you’re using a strategy to streamline your decision-making and eliminate your errors.
You’re not putting enough money in
Pulling off a great trade can be tough, but it can be very lucrative when you nail it. But how lucrative it is depends a great deal on the scale of your transaction. If you’re moving thousands of shares around instead of hundreds, you’re going to see much bigger gains when you succeed. And you’ll see much bigger losses when you don’t, of course, so be careful.
Day traders need to start with a good chunk of money: while you can get away with starting with as little as $5,000 (assuming you’re not trading futures or anything too risky), it’s better to start with tens of thousands.
You can magnify your moves by trading on margin, which essentially means borrowing money from your brokerage. But be careful, as interest rates are high and you have to pay back the loan whether you win big or not.
Your expectations are unreasonable
It is possible to get rich quickly on the stock market — but it’s not the most likely outcome. Smart investing can get you far, but more reliable strategies take longer to come to fruition, and aggressive ones come with risk. Even (perhaps especially) the most active day traders will have days, weeks, and even months where they make nothing or even lose money.
If you’re a casual investor, you should expect slow and steady gains on the stock market. If you’re an active day trader, you should expect there to be rough patches from time to time (and should prepare an emergency fund accordingly). Either way, don’t expect all of your financial problems to be solved overnight just because you’re working hard to invest wisely.
Keep your goals reasonable and your strategies sound, and you’ll find that while the stock market is not a great get-rich-quick scheme, it can be an excellent way to get rich in the end.