Market and Myths: Are You a victim? (PART 1)
“I don’t want to invest in the stock market, it’s too risky!!!”…. “Let’s make some quick money in the stock trading.”
These are two extreme-ended myths that, sadly, majority of people still believe to be true. In particular, the beginners, who either avoid trading because they know less or know too much to “hack” the system with super-human ability. Not that it’s a blatant lie—trading is risky and, on the other hand, it does offer big returns. But the notions that have shaped these narrations are totally wrong. They have spurred from the lack and inconsistency of the right information.
These myths are the biggest reasons why, for many conservative investors, stock market even today enjoys a bad reputation. Many treat the market as a gambling station, others craft their plans, strategies and expectations out of erroneous ideas. Needless to say, each party fails to experience the often-glamorized stories that of successful traders. No wonder, the crowd of individuals with a solid, high-rewarding and sustainable stock portfolio is relatively smaller.
Are you a victim of such misinformation?
‘Sell in May and Go Away’
This Wall Street adage is quite popular. It asks the investors to sell their stock holdings and get back in November to avoid the seasonal decline in the equity market. Based on the sequential underperformance of stock during the six months from May to October, many traders find this strategy much rewarding than to stay in the market round the year.
However, with changing time and emergence of highly reliable computing tools, this old strategy has found its own flaws. While it has some evident disadvantages like transactional cost and tax implications, it also creates some other interference that prevents trading to reach its optimal value. Like fox example, this strategy fails to undertake the current market trends, which often swing based on the progressing factors and not on historical statistics.
So, instead of blindly believing the theory and ending up with partial profits, bring your senses into work. Yes, May through October has been known to be the weakest six-month span for stocks. But market trends change and its strength shifts. Bring out your analytical prowess, leverage the powerful technical analysis tools available and make sound judgment that is based on “what is” and not “what was”.
This article is one in a series of three that talks about the stock market, the myths persisting and how regular traders might be affected by them.