Here’s a question for you: How long does it take for you to purchase a vehicle?
Let’s say I am buying your favorite ice cream – something that doesn’t cost more than $5. Chances are, you take more time deciding to purchase a vehicle (compared to the ice cream), because it costs so much more.
You also don’t understand the purchase as much. It isn’t a ‘repeatable’ purchase, because the car is new – new technology, new gimmicks, etc.
On the flip side, purchasing ice cream for less than $5 is a short process because it is something you’re familiar with. It’s a ‘consumable’ good that you are just looking to restock. The whole decision process could take you less than 10 seconds.
Analyzing a Stock Chart
The same principle applies to analyzing a stock chart…
If you have been watching Apple for the last 5-10 years, you have a good knowledge of how the company moves. You probably have good knowledge of how the company trades and what’s going on with the stock chart.
It might only take you 10-15 seconds to figure out what’s happening with the company if you spend every day looking at the chart.
On the flip side, if you are dealing with a brand new company, it may take you up to half an hour to really look at the stock chart, analyze it, see the trend, and get a feel for how it’s moving.
You want to be careful not to over analyze – analysis paralysis…
Don’t over analyze a stock chart (spending much more time analyzing than usual). Instead, scratch that chart, throw it away, and come back to it in a couple of days. You have a 33.3% chance of getting things right, so why force the trade?
If you’re analyzing a new company, spend short moments analyzing. If you see it and feel comfortable with the trade – go for it! If you don’t see the trend (the volume, price, action, behavior), then let it go.
I typically stick to the companies I know (10-20 I know very well). If I stumble upon new companies with great patterns, I trade them. Otherwise I let them go.
Don’t take a chance with your money. Go with something that’s consistent and you’re comfortable with. That way you’ll be more consistent with your trades and bring in the consistent profits.