What to Do When Stocks Rise and Fall?

The stock market witnesses various dramas every day. The alternating red and green numbers, the rising and falling stock prices, all tug at the hearts of countless investors.

So, what should you do as an investor when stocks fluctuate?

Scenario 1:

Aunt Li: Why does my stock fluctuate so drastically, dropping suddenly?

Editor: When stock prices experience consecutive significant rises or falls without major company announcements, investors should be wary of potential risks like speculative trading.

Aunt Li: But I've already bought this stock. What can I do? Is it just bad luck?

Editor: We invest based on trends. As long as the trend remains unchanged, hold your position unless the trend breaks or reaches your preset stop-loss or position adjustment points.

Before investing in any stock, ask two questions:

1. How much do you want to earn?

2. At what price will you exit?

If targets are met, sell and disregard subsequent fluctuations.

If targets aren't met but the trend holds, continue holding.

If targets aren't met and the trend breaks, decisively reduce or liquidate positions.

Aunt Li: So this is the mindset to maintain when stocks fluctuate!

Editor: Remember, stocks are risky investments. Consider your risk tolerance, align investments with your preferences, and trade cautiously.

Aunt Li: Thanks for the reminder. I'll stay clear-headed and make rational decisions.

Scenario 2:

Aunt Li: I always try to catch the bottom but end up buying halfway up. What should I do?

Editor: You're jumping at rebounds and buying at mid-levels.

Aunt Li: Then what's your advice?

Editor: Let's first analyze why investors rush to catch bottoms.

Root cause of repeated failures: Most investors want quick bargains and fear missing out.

Results vary: 1) Those with sharp instincts catch real bottoms; 2) Hesitant ones miss opportunities; 3) Others fail repeatedly trying to grab cheap stocks.

Why buy halfway up?

"Higher indexes mean more buying?" Aunt Li: When indexes rise, I feel compelled to buy more! Editor: That's dangerous—rising indexes accumulate risk. Higher indexes demand more caution!

"Can't sell at a loss, no cash to buy." Aunt Li: I often go all-in, suffering heavy losses during adjustments. Editor: Yes, being stuck with no cash is painful!

Aunt Li: Maybe bottom-fishing isn't for me...

Impatience and impulsiveness! Aunt Li: Last time I sold at highs and reduced positions but still missed the bottom. Editor: You lacked patience, rushing to buy during adjustments and having no cash when the real bottom came.

Hesitation and mistakes! Aunt Li: During the last crash, I stayed underinvested and missed great opportunities! Editor: Many hesitate at true bottoms, making wrong moves and regretting later.

Bottoms aren't predictable but testable. In bear markets, bottoms are relative: rebound bottoms, interim bottoms, and turning points. Bottoms are found through testing, not gambling.

Testing bottoms requires: 1) Probing potential bottom zones; 2) Starting with 5%-10% positions and setting stop-losses; 3) Increasing positions as trends improve; 4) Cutting losses if the zone isn't the bottom.

Bottom-fishing needs a steady mindset. Editor: Resist temptations and maintain calm. Use "sour grapes" thinking to minimize risks.

Changing stocks on rumors?

Do these sound familiar?

- Bragging about "insider tips" from friends;

- Blindly trusting "stock experts";

- Obsessing over "gurus'" trades;

- Trading frequently on rumors;

- ...

Is this wise?

Aunt Li: Of course not! But I can't help it!

Editor: Let's analyze why you do this.

Possible reasons:

1) Assuming experts are always right. Did they study as long as you? Do their strategies match your risk appetite?

2) Believing rumors bring profits. Are they true, expired, or below expectations? News trading should analyze public information, not bet on rumors.

3) Unable to resist frequent trading. Characteristics of frequent traders:

   - Trading regardless of market conditions;

   - Unable to keep cash idle;

   - Impatient with stagnant stocks;

Hazards of frequent trading:

   - High transaction costs eroding profits;

   - Missing big gains by selling winners too soon;

   - Continuing trades in bad markets, amplifying losses;

Aunt Li: I'm guilty of all these! What now?

Editor: Try these methods:

- Adopt the "slow is fast" investment philosophy;

- Develop personal trading rules for discipline;

- Improve scalping skills through practice;

- For impulsive trading, limit to 100-share lots;

Many investors lack independent thinking, relying on others and doubting themselves.

Build and strictly follow your own trading system to become a successful investor!