Wealth

Part 6 - WAYS TO LOSE MONEY

Many stocks move up and down rapidly and unpredictably relative to their 50 and 100 day moving averages. They may be higher (over bought) or lower (over sold).

If you have a good gain, you may consider taking a profit by selling in case the price drops. You might even set a STOP LOSS order 5, 10 or 15% less than the current price and this might encourage more sellers. 

This is not always wise as many people BUY ON THE DIPS which can result in a rapid rebound which encourages buyers to push the stock even higher.

These events may also be caused, or made worse, by SHORT SELLERS who borrow stocks and sell them hoping to buy them back at a lower price. If the stock rebounds, they add to the buying pressure to reduce their losses. So you have missed the gain particularly if you are not quick enough to buy it back before the short sellers close their position by buying back the stock they just sold. (And you may have to pay capital gains tax).

PUMP AND DUMP artists will drive a stock price up by spreading rumours about a novel drug or gold discovery by a small company and then start buying at a sharply higher price before buying steadily at lower price to raise the market volume. The next days they will repeat the procedure at higher and higher prices until other traders join in the momentum rally. When this takes off the dumping (selling) begins, erratically to mimic normal volatility. 

 Once the dumpers have made a profit they may then start shorting the stock. Trying to time the market just does not work. Many beginners think frequent trading is the way to make money. Wrong. 

 The best way is to stay invested all the time incase you miss the few really good and often short periods when the market takes off. Instead, buy good stocks of well managed companies and stay invested unless the prospects change or better companies deliver better results. You will lose money. The trick is to make more than you lose.