Don’t Pick Stocks. But If You Do, You Must Do This First.
Don’t Pick Stocks. But If You Do, You Must Do This First.
Without an Exit Plan, You Are Gambling
Gambling is fine, if that’s the game you are playing. If you like just putting some money at risk and treating the stock market like a casino because you find it fun, that’s your choice. But do this consciously.
Traders and investors who want to make money do some work before putting on a position.
They think to themselves:
Why am I entering now?
What is my edge here?
How long will I hold this position?
Where will I take profits?
Where will I get out if I’m taking a loss?
What conditions in the world would require me to change this plan?
Most people who don’t work in finance, don’t do this. They just think, “let me buy now because I think it will go higher.” Cool. You’re gambling. Again, that’s fine if that’s what you want but don’t be surprised when you have no idea what to do when your stress of being in a losing position starts to weigh on you.
Write down what conditions must be met for you to sell.
I would argue, most people should never buy individual stocks. But if you do, in order to treat the market with the respect it requires to make money, you need to do a little bit of upfront work. So open a Google Doc and before you enter the position just write down your exit plan for this position.
It doesn’t have to be exact, and probably shouldn’t be. But roughly think when or at what price will I look to take some or all my profits if this idea works? When or at what price will I exit with a loss because my idea has been proven wrong by the market?
Forcing yourself to answer these questions takes some of the “fun” out of the just tapping buy on your phone.
But answer for yourself, are you just in this game to have fun gambling? Or are you actually trying to make some money? If it’s the latter, it’s not going to come easy, so give yourself a chance to get out of your own way and at least have a rough plan before putting your money at risk.
I don’t think buying individual stocks is a good idea, but if you do buy specific stocks, please write down your reasoning and exit plan before you tap buy.