More Trading Tip For Beginners
March 8th, 2010
Everyone wants to be the person that always chooses winners. Most people have no idea how to do that and so they follow the crowd, jump on a bandwagon and buy the stock everyone else is buying. Unfortunately following the crowd is no way to choose winning stocks. If there is no other stock trading tip you remember, please remember this. Don’t follow the pack when it comes to purchasing stock.
People often purchase stock because their Uncle Fred told them it’s going up, they see great gains in the stock, or worse yet, they get a fax from an unknown source suggesting it’s the stock of the future. While the stock might have been a great buy initially, by the time you get the information, it’s too late to make any money.
The mysterious fax that makes its way to your office fax machine is by far the worst way to select a stock. Most of these small companies promoted by a fax are stocks purchased initially by the person sending the fax. It’s their attempt to drive the price of the stock up and make a quick profit. Most of these companies are simply stocks purchased by them only because they cost less than a penny.
If they induce enough people to buy, it drives the price up to two pennies or higher. At that point, the sender sells the stock and makes a tidy profit. If you buy it, you’re the sucker that will help them do just that.
Even if the stock is in a good company, when you follow the pack, you miss other opportunities and make marginal profits on your selections. Remember, unless you’re the lead dog, your scenery never changes and you certainly aren’t smelling profit.
By Tim B. Miller
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