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We've all seen it on TV in some fashion. A couple of people invest hard earned money into a stock that is guaranteed to go through the roof in just a couple of days based on a "friends" word. So they buy in and excitedly watch the value of their investment rise and rise, just when they think about cashing in, their "friend" tells them to hold out. They wait and watch as their money basically goes down the drain. It's a classic comedy situation...until it happens to you. Not too many people are in the habit of just throwing money away, but entering the stock market without a strong trading plan is basically the same thing. The stock market can be unforgiving, especially for the inexperience investor. Despite that fact into account it is still not unheard of to hear people buying into stocks purely based on biased speculation or Internet rumors. A sound trading plan can make sure that doesn't happen to you. Remember from part two of this series, that a trading plan serves as a financial road map. So why if you already have your route planned would you take a shortcut in the form of risky trades based on unverified information? Sticking with a trading plan ensures that you avoid the pit falls of risky investing. Due to the inexperience of many and a lack of strict regulation in some areas of trade, some companies have been able to dupe investors out of millions of dollars. These companies make promises of big profits and incredibly low risk. Knowing that you are going to meet your financial goals, you are able to see these schemes for what they are. Due to the volatile nature of the stock market though, there are times when even the soundest trading plan can take losses. A diverse trading portfolio will help to lessen those losses ensuring you can weather some of the normal storms. Having a sound trading plan, can help an investor stick with it. In most cases sticking with a company after a slight loss can often prove to be a good decision. A solid trading plan though includes a sound exit strategy. Sometimes you just have to know when to cut your losses. There are some losses that are just too much for a portfolio, careful planning is needed to be able to identify if that happens. By sticking with a plan you can ensure that any trade choices that are made are going to be made with a clear head because you were prepared. Investing doesn't have to be overly complicated, but it does require planning. A little extra research will go along way toward ensuring that no matter what the market is doing, you are prepared to meet your financial goals. Diverse investing is about long-term growth. Sure it would be great to hit it big someday, but the facts don't lie. Inexperienced and nonprofessional investors run a very high risk of losing money. Stick with a trading plan and you may just find yourself at Point B of your financial road map.
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