One of the biggest advantages you can have as a trader is to read as much as possible (Warren Buffett is a huge proponent of this). There is two sides to that coin. Trying to process too much information can lead to inactivity, or what I like to call “analysis paralysis.” It can also lead to confusion. As you try to gain an edge by following experts, it can hard to separate bad trading advice from good. And that can have dangerous consequences if you decide to go “all in” on one person’s opinion.
How to spot bad trading advice
If you’re a novice investor, the learning curve is steep. The internet provides a wealth of resources to help you make good decisions, but there are numerous traps.
Ignore any expert who predicts a change in market direction, something we have heard all too often lately. Just last week on CNBC, many regulars were warning of impending doom. And they weren’t just talking about Bitcoin, either! They sounded like the boy who cried wolf, alarming viewers and trying to convince everyone they were going to be right at that very moment.
That is very bad trading advice. Nobody is can time the market unless they get extremely lucky.
What would happen if you listened to their advice and upended your portfolio? You likely would lose out – big time.
Another way to spot bad trading advice is to understand the experts’ motivation. Are they selling a book? A new website or show? What kind of track record do they have? Would you invest alongside them? If you follow their advice, can your portfolio handle the consequences?
I’m not saying don’t listen to the experts. You may learn some valuable new tips or strategies. Be wary of opinions, especially around market timing. As always, pay attention to the market signals and indicators. They will always tell you the truth.
Copyright: luismolinero / 123RF Stock Photo