Many people start trading because they are lured to the idea of “easy money”. They start out by watching the markets and then tell themselves: “Wow, I just need to buy when the market is down and sell when it goes back up.”
At some point, we all look at those lovely looking charts showing the historical prices of the investment we are interested in. Whatever time frame we picked, there are always peaks and valleys. We convince ourselves that it’s easy to just buy when there are valleys and then sell when there are peaks, as they occur so often.
In reality though, it’s not so simple because markets are happening in real time. While it’s trivial to pick the peaks and troughs with the charts, consistently buying a stock before it goes up and selling before it goes down is a complicated process. The stock market is a global marketplace with millions of participants. In order to profit [1], you must be able to gauge why people are buying and selling. Some do so based on fundamentals, some on technicals, and others who buy and sell without knowing much about anything at all. Then you need to worry about the risk appetite of the public, because without it, no one will buy stocks.
When there’s an incredible bull run, there are many traders who make tons of money and likewise when there’s a severe downturn. However, many more lose it all during the transition from bull to bear and vice versa, which happens more frequently than anyone would like.
We will no doubt hear from many who claim to have made fortunes in the market. Those people are probably telling you the truth, but there are countless others who have lost their life savings as well.
If you don’t know what you are doing in the stock market, you could lose (extremely quickly I might add):
- Your savings for the next vacation
- The down payment on your house
- Your next mortgage [2] payment and worst yet, your home
Sure, you can get it back. But you can also lose even more.
Trading is not as easy as it seems. Be careful and think twice before you try it.