When I have a bit of time on my hands, I like to trade over short periods of time. Usually I stick to gold and currencies, which I feel more comfortable with, but once in a while I’ll trade indexes too. I just try to wait until people freak out about an index being really low, like hitting a 6-month or 12-month low, and buy. You can’t really go wrong with indexes, they always end up going up, the only thing is how long will it take, and if you get scared, or need the money right now, you may exit a losing position. I can afford to wait, so it is not a risky trade if the index goes South for a while.
Anyway, I read that the S&P500 was super low, and people were starting to get worried, so following the “when others cry, you should buy” precept, I went ahead and bought some.
Then later in the day, I had a small profit, and started wondering, like anyone else, if it would still go down some more. So I closed my position, took my profit and called it a day.
Look, it’s here:
I bought on the little blue dot, saw it go up, then as I only had the knowledge of the past prices to the left, thought it may hit another bottom, and sold on the little orange dot, just as the index was starting to go up big time. I had 5 units, so those 20 points made me about $100, which is still better than a loss. Had I kept the trade open, gone on with my day and sold it at the end of the week, I would have had $500 instead. I got emotional, and missed out on the price raise.
If you look at it from the past year, the buy was solid, it was a 6 month low and everything looked good.
Until I became my own worst enemy.
And I am not the only one. There is a study from Fidelity that shows the accounts that best performed where the ones people didn’t touch, because they forgot they even had a trading account! You know that the majority of fund managers underperform compared to indexes. A handful will perform better and everyone will want in, until they stop performing so well, because they took too many risks.
But one of the biggest mistake investors make is selling too soon, and holding to losing positions for too long.
My day trades are just another way to diversify my income streams and I don’t take trading very seriously, but if you are saving for retirement and want a nest egg you can actually count on, do the exact opposite: buy indexes, every month like clockwork, and forget about them until you retire.
Are you your best friend or your worst enemy when it comes to making rational decisions with your investments?