Don't Fool Yourself, You're Not a Market Prodigy
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by: ChristinaConley
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Word Count: 415
Last year you were a genius, this year you're an idiot? No, it's not as dire as that, but current market conditions do illustrate some valuable lessons for new traders.I started my trading career in the bull market of the mid-90's, but I began under the direction of some old-time pros. As such, my outlook on investing is much more measure than most, but times like these always have me revisiting the lessons my mentors taught me over a decade ago.In times like these when you don't have the option of requesting a government bailout, there are a few important lessons to keep in mind.1) All boats rise at high tide.Or simply put: you didn't make money in an investment, the market made you money. In a bull market, even the dogs can rack up some pretty good performance numbers. Not to mention the high-fliers, which only fly high in bull markets, and then plummet back to the Earth when the fundamentals are called back into question.Lesson: you are not a genius. You've picked some winners, you've picked some losers. Track your performance against a benchmark and don't ever get too full of yourself or too down on yourself.2) Know what lies under the coversYour friend calls breathlessly with a hot tip that you've got to act on. XYZ corp. is moving on high volume!While that might work in a bull market, you should always be wary and protect yourself on the downside. Fundamentals will always matter, regardless of market conditions. They might matter more during certain markets than during others, but they will always matter.3) Uncle Sam gets his cutAll of your trades are dampened by what you owe the government in capital gains and income taxes, unless of course, you're trading in a retirement account. But then again, active trading in a retirement account is probably not the wisest of moves anyway, is it?Be sure to figure in your taxes as you're calculating your earnings or losses at the end of the day, week, month, quarter, or year.4) Ride the winners, cut the losersExactly the opposite of what most traders do, you should hold onto your winners. Most traders believe they can time the market top, and get out quickly while maximizing profit. Even if they time one movement correctly, it's unlikely that they'll make better use of the proceeds in another investment. If you have a winner, hang on to it. If it turns into a loser, then you can ditch it.
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About the Author
Christina is a 13-year investment industry veteran, and shows clients how they can learn trading tactics that work. Claim your FREE book to learn more about stock day trading.
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