Top 10 Reasons for Missing Great Stocks

Best Intraday Stock Tips for Today & Tomorrow

There is this stock you laid your eyes on for a long time, good! The Market seems poised to make the fresh entry, great! Sharp investors are often able to identify perfect investment opportunities. It is their emotional volatility that often diminishes their returns. Solid research should be the base of any investment decision but the decisions are often derived from an individual’s emotional response. 

Many skills are required for trading successfully in the financial markets. They include the abilities to evaluate a company's fundamentals and to determine the direction of a stock's trend. But neither of these technical skills is as important as the trader's mindset.

Containing emotion, thinking quickly, and exercising discipline are components of what we might call trading psychology.

There are two main emotions to understand and keep under control: fear and greed.

Emotions get the better of the investors or even traders. There are some emotions which play every time hindering the profits of the traders or investors, sometimes even for years, they are not able to break this bad habit. One needs to understand what they are going through and why is it happening and break this vicious chain which deters in profit generation.

Ruled by our emotions we often do the most inevitable in terms of investments – buy high and sell low. Such tendencies are most harmful to financial well-being as it can push us further away from achieving our financial goals. 

However, though it is easy to say stay unemotional towards your investments, it is equally tough to follow.

Often investors miss out on stocks that are potentially multi-bagger due to their emotions. For starters, even if the trader or investor is convinced that the stock is great, he would want to wait out and see the price movement or wait for a breakout. Other reasons for missing out on a great performer are them being too pricey or the inability to buy a number of that particular stock due to it being expensive.

Some might even try and justify not getting into trading the great performer saying that the market is not ‘liquid’ even though they are just going to buy one lot and the stock is trader daily with volumes of tens of thousands of shares.

Another excuse that traders give for not getting into a brilliant stock is that ‘they are hearing the name for the first time’. They might have done their due homework and conclude that the stock is worthy of trading/investing yet they would not trade with it saying they haven’t heard about it before or from a known source like his friends or even family.

Similarly, one might give the excuse that they haven’t heard it on media platforms like news channels or news websites. If they follow the general media for their trading or investing, their returns will also mirror the returns of the general retail investor thus failing to beat the market.

If the said outperformer is already doing well and is moving up steadily, they come up with the excuse that they shall wait till the price comes down and if it is already down, they say that let the stock complete its downtrend and then they can participate in its trading.

If by chance the stock is recent, they’ll say the ‘there’s no steam left’ and they have reached their potential. Investors and trader should try to practise controlling their emotions and make decisions based on fundamentals and overall performance rather than making such silly excuses.

Traders often have to think fast and make quick decisions, darting in and out of stocks on short notice. To accomplish this, they need a certain presence of mind. They also need the discipline to stick with their trading plans and know when to book profits and losses. Emotions simply can't get in the way.

Investment decisions need an understanding of the situation that the companies are facing. Investors need to predict the future outcome of an event. It is important to assess the future earnings or valuation that stock would derive. 

An investor tends to be biased towards a stock which has been an outperformer in the past. He might end up ignoring sell signal on technical charts or fundamental perimeters.

Fear and greed also influence the investor’s thought process. Greed forces him to buy a beaten-down stock, in expectation of higher returns. He might ignore weak fundamentals in that process. Greed may also force him to hold onto a stock past its prime. Fear stops him from buying a quality stock in a volatile market. He fears further downslide. Same fear makes him selling a well-performing stock way before its time; out of the fear of correction.

Long term investors are also prone to similar mistakes. They remain stuck to stock in hope of recovery and ignore weak fundamentals. Emotions are again at play when investors make decisions based on their gut feelings. By trusting their gut feeling, they attempt to bottoms or tops in the market.

The stock market has always been hostile to those entering with a mentality to make short term money. Market mechanism often rewards patient investors. Here, money moves from fragile to strong hands over a period of time. 

A beginner often sells under panic when volatility increases, resulting in wealth erosion. An informed investor uses this volatility as an opportunity. He buys quality stocks at lower valuations to maximize gains over the period of time.

A novice investor is often a victim of faith. He follows irrational tips provided by friends, colleagues or incompetent financial advisers. Failure to build on one’s own knowledge often leads the participants to lose their hard-earned money.

As Ace investor Warren Buffet once said: “Never invest in a business you cannot understand.”. A market participant should always back his decisions with proper research. Understanding of the business that he is investing in is a must. One should also maintain patience to earn healthy returns over a longer period of time

Learning in the stock market is a never-ending journey. Not everyone is able to devote enough time out due to their professional commitments. As a result, participants often take short cuts. Here, emotions often take over rationale. It may result in mistakes while making investment decisions. The prime reason is the inability of a market enthusiast to generate solid research on his own. Stock Market requires constant efforts to gain knowledge. Instead, human emotions often take over and mistakes are committed. A simple way to counter it would be to seek professional help while investing. 

When traders get bad news about a certain stock or about the economy in general, they naturally get scared. They may overreact and feel compelled to liquidate their holdings and sit on the cash, refraining from taking any more risks. If they do, they may avoid certain losses but may also miss out on some gains.

Traders need to understand what fear is: a natural reaction to a perceived threat. In this case, it's a threat to their profit potential.

Quantifying the fear might help. Traders should consider just what they are afraid of, and why they are afraid of it. But that thinking should occur before the bad news, not in the middle of it. 

Fear and greed are the two visceral emotions to keep in control.

By thinking it through ahead of time, traders will know how they perceive events instinctively and react to them and can move past the emotional response. Of course, this is not easy, but it's necessary to the health of an investor's portfolio, not to mention the investor.

There's an old saying on Wall Street that "pigs get slaughtered." This refers to the habit greedy investors have of hanging on to a winning position too long to get every last tick upward in price. Sooner or later, the trend reverses and the greedy get caught.

Greed is not easy to overcome. It's often based on the instinct to do better, to get just a little more. A trader should learn to recognize this instinct and develop a trading plan based on rational thinking, not whims or instincts.

A trader needs to create rules and follow them when the psychological crunch comes. Set out guidelines based on your risk-reward tolerance for when to enter a trade and when to exit it. Set a profit target and put a stop loss in place to take emotion out of the process.

In addition, you might decide which specific events, such as a positive or negative earnings release, should trigger a decision to buy or sell a stock.

It's wise to set limits on the maximum amount you are willing to win or lose in a day. If you hit the profit target, take the money and run. If your losses hit a predetermined number, fold up your tent and go home.

Traders need to become experts in the stocks and industries that interest them. Keep on top of the news, educate yourself and, if possible, go to trading seminars and attend conferences.

Devote as much time as possible to the research process. That means studying charts, speaking with management, reading trade journals, and doing other background work such as macroeconomic analysis or industry analysis.

Knowledge can also help overcome fear.

Traders need to remain flexible and consider experimenting from time to time. For example, you might consider using options to mitigate risk. One of the best ways a trader can learn is by experimenting (within reason). The experience may also help reduce emotional influences.

When markets are falling, we fear that we will make losses. The losses that we see during such times are paper losses, i.e. the price of the investment is currently lower than what the price was when you bought it. And it would again go up. Now the moment you redeem those units under panic, the paper losses become a real loss.

In fact, an investor should do quite the opposite during such times. Instead of selling, they should buy more at low (as much as they can afford) and reap its benefit once the markets go up again. 

Knowing how to control emotions while trading can prove to be the difference between success and failure. Your mental state has a significant impact on the decisions you make, particularly if you are new to trading, and keeping a calm demeanour is important for consistent trading. 

Finally, traders should periodically assess their own performances. In addition to reviewing their returns and individual positions, traders should reflect on how they prepared for a trading session, how up to date they are on the markets, and how they're progressing in terms of ongoing education. This periodic assessment can help a trader correct mistakes, change bad habits, and enhance overall returns.

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