Saturday, June 22, 2024

What are the traps that retail investors can easily fall into when trading stocks?


Some investors are passionate about stock speculation and are constantly looking for hot stocks. They buy and sell stocks very frequently, jumping from one concept to another and one sector to another. Their basic starting point is: just don't be the last one to hold the bag.

The so-called last stick is the highest price. If you catch the last stick, your fate will be very tragic. It means being stuck at a high position or suffering a huge loss. In stock market trading, things that are hotly speculated by speculators are extremely hot. The longer they are speculated, the higher the risk.

Consider stocks that have a post-tax profit per share of only 1 rupee and net assets of only 2 rupees. Despite these fundamentals, some speculative institutions have driven the price of these stocks to over 20 rupees. Enticed by the rising stock price, many small and medium-sized retail investors rushed in to buy and sell. However, they were caught off guard by the speculators' selling, causing the stock price to plummet from a high level. In the case of warrants, some small and medium-sized retail investors blindly followed the trend and became blinded by greed, pushing the price of warrants up by 1/3 more than the price of the underlying shares. Ultimately, these warrants became worthless.

As long as individual stocks are speculated by the stock market, there is usually a manipulator behind them, which is what retail investors usually call "bookmakers." When the stock price is blown up like a bubble, the bookmaker at this time has already completed the bottom absorption process and is quietly waiting for the taker. As long as someone follows up, the dealer will take the opportunity to ship and gain huge profits. The stocks received by those who follow up often have extremely high price-to-earning ratio  and it is not cost-effective to wait for dividends, but it takes an unknown and long time to unwind.

It's easy to say that you shouldn't be the last one to hold the baton, but it's hard to do, because no individual investor can accurately predict the price of a stock. No one has the foresight to know whether or not they are the last one to hold the baton. You can only guess beforehand and verify afterwards. But once it is proven that you are the last one to hold the baton, the risk has already occurred.

Even if you're not buying the last stock, there's still a high risk of losing money when you buy stocks at high prices. Retail investors generally have profit expectations when they buy stocks. However, the prices of hyped stocks are always very volatile, rising rapidly and falling quickly. Sometimes, you see the price go up, but before you can place an order, it goes down again. And sometimes, even though there is some profit potential, most retail investors are unwilling to sell because they haven't met their profit expectations and they watch helplessly as the stock price slides down and they get stuck.


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