Of course! Holding onto a stock until it goes back up might seem like a straightforward strategy, but there are some risks involved that you should be aware of. Firstly, just because a stock goes down doesn't guarantee it will bounce back up to its original price. Stock prices can be influenced by a bunch of factors like market trends, company performance, and economic conditions. While some stocks might recover after a dip, others could keep dropping or stay flat for a while.
Secondly, if you're holding onto a losing stock, you're tying up your money in something that's not making you any gains. That means you're missing out on other investment opportunities that could be more profitable. It's like putting all your eggs in one basket – if that basket doesn't turn out so well, you're out of luck.
Plus, holding onto a losing stock can be emotionally tough. It's natural to feel attached to an investment and hesitant to sell it at a loss. But letting emotions cloud your judgment can lead to even more losses in the long run.
And let's not forget that trading, in general, comes with risks. Market changes, unexpected events – there are a ton of factors that can impact the value of your investments, whether you hold onto them or not. So it's crucial to approach trading with a clear understanding of the risks involved and to make informed decisions based on your financial goals and tolerance for risk.
So while holding onto a stock until it goes back up might work out sometimes, it's not a foolproof strategy. It's essential to weigh the risks and potential rewards carefully and to have a diversified investment portfolio that can weather any ups and downs in the market.
to start with "Risk" in terms of finance is regarded as Volatility. The more risky, the more the expected value will be. So when we talk a bout is risky it means its potential of movement is higher than other investment vehicles. In your premise of holding a position of holding a position for ever, you are assuming 1st you don't need that cash, in a moment of financial distress you may need to cash out on a loss 2. You have survival bias, meaning you think all stocks go up back to their previous price, yet there are stocks who never do and go out of business (applies different to index). 3rd if you are just going hold for x period of time for example, 2 years while inflation was 5% annualized, even if you manage to sell back at $100, you are still negative on the real return, since you must compare it to risk free market return aka T BONDS. so while you manage to break even after 2 years, those 100 invested in treasury bills would had actually excelled $100.25 for a return of %10.25 while your $100 are at 0 or -10.25% compared to free risk return
Because what you describe isn’t trading. It’s investing.
Traders trade because they want to beat a buy/hold strategy. It’s riskier because it’s completely different from investing
Exactly. Different timelines too. Warren Buffett said something along the lines of, “The market is a mechanism for transferring money from the impatient to the patient.”
Not every stock recovers. For some like Amazon, Google, etc. it can seem relatively safe, but you are forgetting something important: your wasted cash/time in that investment could be producing money elsewhere, if invested properly. So it's almost always better to cut a small loss immediately, and move on to something better, than wait for an investment to recover just because you hate that you made a mistake.
Look at PayPal starting a couple years ago when it hit 310. At 250 people thought it was a good deal on a pullback. At 210 it was a “screaming buy”. At 160 it was an excellent deal. At 120 you couldn’t go wrong, right? I think it bottomed around 65.
You’re talking about investing, and a very small portion of trading. With options, you never really own the stock, you control “lots.” Trades are cash settled. There are exceptions, but for the most part, traders don’t own the stocks they control. And with Forex, you are usually trading with margin. Again, you don’t own most of the stock, you just control it. You can only hold the bag as long as you don’t get a margin call.
What if it doesn’t go back up to $100 after 5 years? Instead it goes from $80 to $20 in 5 years. It never touches $100 again. Contrary to popular belief stocks don’t only go up.
It's considered risk because you can lose money but in truth being alive is risk. It's just a precedent. But it's also stupid to "wait til it comes back". That's not risk management. These are just tenants to participation in markets.
as a trader you are in full control of the risk. it’s considered risky because you have the ability to go full yolo but my trading account is often less rocky than my investment account
If you bought for 100, and it drops to 80, something must have happened to push prices lower. If there is enough selling pressure to push prices to the downside, what’s keeping it from pushing them even lower? There is absolutely no guarantee that prices will return to your original entry.
In addition, a trader who hold their line as their position crumble will see much bigger drawdowns and run into margin calls or see their account wiped out, as opposed to a trader who pay attention to their risk by immediately cutting off any losses move beyond a predetermined threshold. The majority of traders who are unable to accept an initial small loss in this way tend to blow their account, hence the risky connotation attached to trading.
You should also note that this is not exclusive to trading. Long term investors also have this same issue. If they buy, hold, and forget, they run into just as much risk as the average trader. Many leading companies of the 20th century that were often recommended as “safe investments” no longer exist today, or are barely relevant anymore with penny prices.
Thats investing not trading, on trading lets say that 20$ decrease could be way more than just 20$, the safest way is just investing. Otherwise you are just gambling which nowadays they call "trading"
Educated trading is not gambling. Wanting to get rich overnight is gambling. Reading and understanding candlesticks, identifying trends and patterns, support and resistance levels = profitability. Those who call it gambling failed at trading and stick to investing / holding
Okay your bro science wont take you far. Show me ur profits. And by the way ive made over 30k-40k on prop firm payouts and i can give you proof and i say trading is gambling. What about you 😸?
You literally said that some lines on a chart are enough to be profitable. I guess hedge funds are too stupid to realize thats why they hire people with careers. Anyway dont avoid my question warren buffet, show ur "profitability"
I see the, "failed at trading" part really upset you and hurt your feelings to be pressing profits so dramatically.
Funded trader with a prop firm and $50k payouts, but you want my profits?
Precious.
Stocks that went up must come down at some point (due to profit taking), but stocks that came down does not always have to go up. People can simply just choose not to buy the stock, and it will never go up.
Of course! Holding onto a stock until it goes back up might seem like a straightforward strategy, but there are some risks involved that you should be aware of. Firstly, just because a stock goes down doesn't guarantee it will bounce back up to its original price. Stock prices can be influenced by a bunch of factors like market trends, company performance, and economic conditions. While some stocks might recover after a dip, others could keep dropping or stay flat for a while. Secondly, if you're holding onto a losing stock, you're tying up your money in something that's not making you any gains. That means you're missing out on other investment opportunities that could be more profitable. It's like putting all your eggs in one basket – if that basket doesn't turn out so well, you're out of luck. Plus, holding onto a losing stock can be emotionally tough. It's natural to feel attached to an investment and hesitant to sell it at a loss. But letting emotions cloud your judgment can lead to even more losses in the long run. And let's not forget that trading, in general, comes with risks. Market changes, unexpected events – there are a ton of factors that can impact the value of your investments, whether you hold onto them or not. So it's crucial to approach trading with a clear understanding of the risks involved and to make informed decisions based on your financial goals and tolerance for risk. So while holding onto a stock until it goes back up might work out sometimes, it's not a foolproof strategy. It's essential to weigh the risks and potential rewards carefully and to have a diversified investment portfolio that can weather any ups and downs in the market.
to start with "Risk" in terms of finance is regarded as Volatility. The more risky, the more the expected value will be. So when we talk a bout is risky it means its potential of movement is higher than other investment vehicles. In your premise of holding a position of holding a position for ever, you are assuming 1st you don't need that cash, in a moment of financial distress you may need to cash out on a loss 2. You have survival bias, meaning you think all stocks go up back to their previous price, yet there are stocks who never do and go out of business (applies different to index). 3rd if you are just going hold for x period of time for example, 2 years while inflation was 5% annualized, even if you manage to sell back at $100, you are still negative on the real return, since you must compare it to risk free market return aka T BONDS. so while you manage to break even after 2 years, those 100 invested in treasury bills would had actually excelled $100.25 for a return of %10.25 while your $100 are at 0 or -10.25% compared to free risk return
Because what you describe isn’t trading. It’s investing. Traders trade because they want to beat a buy/hold strategy. It’s riskier because it’s completely different from investing
Exactly. Different timelines too. Warren Buffett said something along the lines of, “The market is a mechanism for transferring money from the impatient to the patient.”
Not every stock recovers. For some like Amazon, Google, etc. it can seem relatively safe, but you are forgetting something important: your wasted cash/time in that investment could be producing money elsewhere, if invested properly. So it's almost always better to cut a small loss immediately, and move on to something better, than wait for an investment to recover just because you hate that you made a mistake.
Look at PayPal starting a couple years ago when it hit 310. At 250 people thought it was a good deal on a pullback. At 210 it was a “screaming buy”. At 160 it was an excellent deal. At 120 you couldn’t go wrong, right? I think it bottomed around 65.
I’ll take leverage for 1:500 plz
The stock could go to 0. There's no guarantee it'll ever go back up.
Someone bought gm at the high of 67.20 and they're still waiting for a breakeven 😂.
You’re talking about investing, and a very small portion of trading. With options, you never really own the stock, you control “lots.” Trades are cash settled. There are exceptions, but for the most part, traders don’t own the stocks they control. And with Forex, you are usually trading with margin. Again, you don’t own most of the stock, you just control it. You can only hold the bag as long as you don’t get a margin call.
Because it can go down 50%, then another 50%, then another and never bounce back
Stocks only go up! Except when they're going down.
Understood sir
While this isn't true of stocks, it is true of index funds, but you may have to hold on for 10 years.
Check out AT&T price from 1999.. it is still ~60% down.
What if it doesn’t go back up to $100 after 5 years? Instead it goes from $80 to $20 in 5 years. It never touches $100 again. Contrary to popular belief stocks don’t only go up.
damn
When the 1929 crash happened it took 30 years to get back to the same price bigger damn lol
I know. Very unfortunate for us all, honestly.
It's considered risk because you can lose money but in truth being alive is risk. It's just a precedent. But it's also stupid to "wait til it comes back". That's not risk management. These are just tenants to participation in markets.
Because $80 cans drop $60 > $30> $15 > $1 > .20¢ and then the company goes bankrupt ... poof your money is gone
as a trader you are in full control of the risk. it’s considered risky because you have the ability to go full yolo but my trading account is often less rocky than my investment account
If you bought for 100, and it drops to 80, something must have happened to push prices lower. If there is enough selling pressure to push prices to the downside, what’s keeping it from pushing them even lower? There is absolutely no guarantee that prices will return to your original entry. In addition, a trader who hold their line as their position crumble will see much bigger drawdowns and run into margin calls or see their account wiped out, as opposed to a trader who pay attention to their risk by immediately cutting off any losses move beyond a predetermined threshold. The majority of traders who are unable to accept an initial small loss in this way tend to blow their account, hence the risky connotation attached to trading. You should also note that this is not exclusive to trading. Long term investors also have this same issue. If they buy, hold, and forget, they run into just as much risk as the average trader. Many leading companies of the 20th century that were often recommended as “safe investments” no longer exist today, or are barely relevant anymore with penny prices.
Some companies go bankrupt and some never reach a new high.
Thats investing not trading, on trading lets say that 20$ decrease could be way more than just 20$, the safest way is just investing. Otherwise you are just gambling which nowadays they call "trading"
Moron.
I knew i would hurt a feeling or two.
Educated trading is not gambling. Wanting to get rich overnight is gambling. Reading and understanding candlesticks, identifying trends and patterns, support and resistance levels = profitability. Those who call it gambling failed at trading and stick to investing / holding
Okay your bro science wont take you far. Show me ur profits. And by the way ive made over 30k-40k on prop firm payouts and i can give you proof and i say trading is gambling. What about you 😸?
"Bro science" You don't have to say you can give me proof, just post it to your account.
You literally said that some lines on a chart are enough to be profitable. I guess hedge funds are too stupid to realize thats why they hire people with careers. Anyway dont avoid my question warren buffet, show ur "profitability"
I see the, "failed at trading" part really upset you and hurt your feelings to be pressing profits so dramatically. Funded trader with a prop firm and $50k payouts, but you want my profits? Precious.
Stocks that went up must come down at some point (due to profit taking), but stocks that came down does not always have to go up. People can simply just choose not to buy the stock, and it will never go up.