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Stock Trading is KILLING Your Returns | Here's How to Do it Right!

Stock market trading costs the average investor over $100,000 over 20 years, not because you can’t make money trading stocks but because you’re doing it wrong! Most investors say they’re long-term investing but then trade stocks, and use the wrong analysis to pick stocks! Get this $150 discount to my stock trading and technical analysis course!

Data from JP Morgan shows the average investor earned just 2.9% a year in stock returns over the 20 years to 2020. That’s under the 7.5% market return on stocks and even under the 5% return on safer bonds. If you invested just $500 a month over that period, that mistake would cost you over $100,000!

It’s because investors are trading stocks. The average time holding a stock has dropped to just five months, from a holding period of nearly eight years in the 60s. But it’s not because trading stocks is bad or that stock traders don’t make money. It’s because investors tell themselves they are long-term investors, use the long-term tools to pick stocks, but then end up trading in and out. They lose money because the tools you need to trade stocks are totally different from those that help you pick long-term investments.

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I’ll start by showing you the difference between long-term and short-term investing including the different tools you need for each. I’ll explain why most investors say one thing but then act totally different when they’re investing and why it loses money. I’ll then reveal two types of stock trading and how to use each to get higher returns.

Long-term investing is about taking an ownership in earnings growth of a company. For that, you use fundamental analysis like sales growth and competitive analysis of the industry. Short-term stock trading is about finding the technical signals and patterns in a stock price for when to buy and sell. It’s almost completely driven by investor sentiment.

The problem is that so many investors use that long-term analysis to pick stocks but then get spooked when the share price drops a little over the near-term. That analysis isn’t meant to tell you a stock will go straight up but that it will go up over time. Unless you’re willing to give a stock time to prove that analysis, you need to be using the short-term technical signals that tell you where it is going in the short-term.

Even if you’re a long-term investor, you might want to commit some of your portfolio to short-term stock trading. For those with a gambler’s itch, that’s going to allow them to make quick decisions and follow stocks but keep them from selling out of their long-term investments. Not only does it distract you from making bad investing decisions but, using the right stock signals, it can help boost your stock returns as well.

Understand though, there are different types of stock trading and different tools you need to use for those as well. Day trading relies exclusively on technical analysis and chart patterns. Swing trading, where you hold stocks for longer than a day but usually less than a few months, will use more of the fundamental analysis and news events to make money.

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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.
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