Lessons from past Bullmarkets
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It's the bullmarket once again where opportunities unfold and fortunes are made. Where one can dream of making millions and achieve financial freedom. To be fair, there are a lot who got rich because of investing smartly and timely. Not me though, I made a lot of mistakes -- and this bullrun I have to reflect on my past errors in order not to repeat them.
- FOMO
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I joined a lot of chat groups and forums in my early trading days. I'm often envious at people who post their "next big thing" that could 1000x. There will be groups who would be fans of a particular rising stock/token who celebrate in the forum as their stock rallies daily. I would want to be a part of their group and buy even thought the stock already pumped 100x.
- No risk management/position sizing
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Primary rule of trading is to "PROTECT YOUR CAPITAL". Not for me, that's for cowards. I would go "all in" in a particular stock I believe would pump. Consequently I'd get anxious as other stocks are pumping while mine is a laggard or even losing.
- Not following trading plan or not having a trading plan at all
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Another sound trading rule is to plan your entry and exit. Not for me, I'd buy as soon as I find a "diamond in the rough" stock. I would celebrate as it goes up and wait for it to go up more. "As long as it's going up, I will not sell" is my motto. When it goes down and I suffer losses I'd tell myself that I'm in it for the long term. "I'm an investor, not a short term trader" is my other motto.
- Believing in pipe/hype dreams
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Sure I also do some research but once I buy a stock, I'd fall in love with it promising myself gains of 1000x. Many times I haven't sold despite large gains because it hasn't reached my "target price" which looking back now seem unrealistic. I had a habit when I buy: I would write how many shares I bought and multiply it with an unrealistic price then I'd dream of the money I would potentially earn.
Needless to say, these mistakes did not end well for me. The best that I can do is to learn from them although it's a costly "tuition fee".
So I will practice the following this time:
Have a good reason for entering a trade - Whether to go long or short, there should be a particular reason for entering a trade. Is it making money? Undervalued or overvalued? Are the charts indicating a buy or sell signal? Have a trading diary and write it down and review it after making the trade.
Practice risk management - Do not go all in. On the contrary each stock should only be portion of your capital. For example, each stock should only be 10% of your capital and should only tolerate a loss of 10%. That way, you will not blow your capital.
Follow a sound trading plan - Entering a trade using charts is one good way to maximize profits. Not necessarily to buy low, just time your trade when the stock is moving in particular direction whether it's to rally or reverse a current trend. Exiting a trade is just as important. Nobody ever lost money taking profits so have a profit in mind and take it once reached, DO NOT BE GREEDY. Also selling when your expectations are not met should be done to minimize losses and PROTECT YOUR CAPITAL. My new motto, POP COLA: Protect Our Profits, Cut Our Losses Always!
Thank you for reading and I hope we all make money this bull run.
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