Common mistakes

After speaking to many people in last few months, I have realised that most of them make common mistakes when they start trading.

Here are few of them.

1. Sell when a stock is still going up.
2. Buy when a stock is going down thinking its cheap. They don't bother to investigate why it is going down. They keep the stock even if it lost more than 10%.
3. Most of them buy blue chips thinking they are safe bets.
4. They rely heavily on charts and fundamentals like P/E, EPS.
5. They buy because someone on a business news channel or in a news paper think it is good value.
   

Here is what they should be doing.

1. Hold the stock as long as it going up. Put a tracking stop loss of 7% from peak.
2. Sell if the value has dropped by 7% from your buying point.
3. Blue chips stocks may be good for reteriment where they give you 5 to 7% return in bull market. Explore new fast growing companies. There are the stocks which can give you 100% to 1600% return. Find couple of such stocks in a year and you can retire early.
4. Build your rules to filter the list of stocks you would like to buy and then use charts to support your decision.
5. If someone is recommending on a televison or news paper, it is already too late to buy. The stock may already have priced in the news. Do your research.
   

Stock picking is a beautiful art. Once you master it, you will be happy for your lifetime. Again these thing need time and effort. There is no such thing as free lunch.