Here are four myths about trading and stock market investing;
Most people assume that if a company’s share price has fallen by a certain amount, it is highly impossible to fall any further. Share prices fall as a result of various factors. It could be that the company has reduced its growth estimate, or just that the company has fallen out of favour with analysts. The stock market is to a very large extent speculation. A falling share price could mean that there is speculation that the company might be about to experience difficult times. If a company’s share price has fallen 50%, it can still fall by a further 50%. It’s even possible for shares of historically good companies to become worthless. In the UK, Northern Rock is a very good example. In the US, Lehman Brothers is a very good example.
· The stock cannot rise any further.
Similarly a lot of people assume that because a company’s share price has tripled in value, it is very unlikely for it to rise any further. A share price can rise to a level that defies explanation. This is seen in a lot of technological and biotech stocks.
· You have to be smart to succeed.
This is also untrue. Trading is not an activity where the person with the biggest intellect wins. “The most important quality for an investor is temperament, not intellect… You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.” Results in investing is best summarised by this quote by Adeola Odutola a Nigerian industrialist, “Over the years I have known too many people who are not terribly intelligent but who somehow get things done slowly and perhaps not imaginatively, but they get there. Yet too many able people who understand much better and see much more clearly and talk much clearly get nothing done. Hence, I have observed that effectiveness is neither a talent nor ability. It is a practice, a habit”
· Trading is for the fast and furious.
Even though certain timeframes, e.g. day trading requires speed and the ability to make quick decisions, trading as a whole requires a lot of patience. According to Warren Buffet, “The Stock Market is designed to transfer money from the Active to the Patient”. Seth Glickenhaus puts it in this context, “You make money on Wall Street by being very selective and being patient, waiting for those opportunities that are irresistible, where the percentages are very heavily in your favor”.
Deji Odusi has been using the stock market to generate an extra source of income for over four years. Deji shows that technical analysis works if you take time to understand the techniques, find your edge and diligently stick to your plan. He is the author of “Stock Market Blueprint for the Diligent Investor – Proven Strategies for Making Money in the Stock Market”.
His website is http://www.diligenttrader.com
Article Source: http://EzineArticles.com/7940752