17 Questions
What combination of factors usually results in a plane crash, according to the text?
Bad weather, new pilot's error, and technical malfunction
What aspect of a stock should you understand before trading it?
Volatility and historical movements
What should you focus on when a stock moves against you?
Controlling your risk
What is the purpose of setting a stop when trading stocks?
To control risk and prevent further losses
What is the role of ego in trading stocks, according to the text?
To be kept out of trades at all costs
Which aspect should New Trader focus on to avoid further losses after a stock moves against them?
Selling immediately without hesitation
What should be the primary goal when trading stocks over the long-term?
Making money consistently
What is the main challenge that New Trader faces when trading stocks, according to Rich Trader?
Managing psychological temptations
What does Rich Trader believe is essential for a trader to do regardless of their feelings?
Follow their trading plan
What does Rich Trader suggest are the two main roles of a trader?
Researcher and trader
Why did New Trader feel surprised by the temptations he experienced while trading?
His emotions weren't aligned with his plan
What realization did New Trader have about Rich Trader's trading habits when he visited him?
He didn't watch financial news
What advice does Rich Trader give New Trader regarding the psychological aspect of trading?
Being disciplined is key
'I am surprised at the temptations I feel when I trade,' indicates that New Trader is struggling with:
Discipline and adherence to the trading plan
'It would be foolish to buy a stock with no plan.' This statement emphasizes the importance of:
Having a well-defined trading plan
'Stocks were going up.' What illusion did this statement create for New Trader?
The market was easy to beat
Why did New Trader decide he needed to get away from the computer and temptation to trade?
To avoid impulsive trading decisions
Study Notes
- Holding a stock through earnings exposes one to earnings risk, where a sharp move post-announcement can impact the account.
- Political risk can affect investments if a company is located in an unstable country or does business there, as seen in Cuba in 1960.
- Trading options comes with time decay risk, as the time value decreases daily until it equals the intrinsic value based on the strike price.
- Technology risk is frustrating for traders due to potential internet connection issues or platform malfunctions during trades.
- Overtrading or spontaneous trading can lead to bad decisions driven by emotions like greed, which may result in losses.
- Rich Trader emphasizes the importance of understanding stock volatility, earnings reports, and economic factors before trading.
- Trading rules and discipline are crucial for success, including following a trading plan, cutting losses, and avoiding overtrading.
Test your knowledge on various risks that investors may face, such as earnings risk and political risk. Learn how different factors can impact your investments and strategies to mitigate these risks.
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