Investment Mistake #3 - Buy High Sell Low

I know. It is really a stupid idea. Because in order to make money from stock we need to buy low and sell high instead. Unfortunately to some investors including myself, buying stock at high and selling at low is what we end up doing most of the time. So why are people doing such a stupid thing?

This is how it happened. Let's say you saw a stock going up 20% in one day. So will you buy it or not? Maybe not because you know it's up way too much in one day and will come down the next day.

So day 2 comes and the stock went up another 20%. Tempted? But the logical side of your mind says it is too risky because the stock has gone up too much too quickly.

Day 3 the stock accelerated and went up 50% in one day and then you hear your friend taking about how smart he is making money with the stock. And there is a battle starting in your brain now.

Day 4 you make the decision that if the stock goes up then you are jumping in. The market opens and the stock went up another 10%. You hit the "Buy" trigger and feel a little worried but frustrated too that you missed the golden opportunity. And by the end of the day the stock finished up another 10% and you are so excited about how smart you are picking the stock.

Day 5 and thing begin to turn south on profit taking. Stock down 10%. Not too worry you think because it is just back to where you were and it will sure come back.

Day 6 the drop accelerated and the stock is down 20%. You say to yourself it is down the second day and shouldn't go down any further.

Day 7 another 20% drop. You feel so ashamed and don't want to admit "mistake" you made. So you say "forget it, I'm going for Long position... it should eventually come back".

After one year the day you bought the stock happens to be the all time high of the stock and you have lose so much money on the stock that you finally pull the sell trigger and never look back at the stock again.

So sounds familiar?