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Attraction & “Hot Stocks” are Dangerous in the Market

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All right, thanks for joining me in this video segment. In this episode, what I want to share with you is the concept of Attraction, and attraction is very dangerous in the stock market.

If you’re really attracted to certain types of stocks or certain types of indicators, it can be a huge problem. So we’re going to cover that in this video when it comes to the mental game, where we chat about the mentality and the psychology of trading.

Now, if you want to get into a deeper scoop when it comes to trading options, check out my other channel at tradersfly.com, which is also the website there as well. All right, let’s take a look at attraction.

Attraction in the Stock Market

When we look at bees in terms of attraction, they are drawn to plants with open or flat tubular flowers. You might be wondering why we are talking about bees when we really should be talking about the stock market.

Well, because human nature is no different. When you’re a human, you’re attracted to certain things. You’re attracted to certain stocks, like Tesla, Fiverr, Nvidia, or even companies like AMC.

All of these things have a certain degree of attraction for us. But what I want to point out is that sometimes, the most attractive trades can also be the worst trades to make. Some attractive trades still work out fine, but in some cases, they are not the best trade.

Diversifying Your Investments

You might be attracted to companies like ServiceNow, but then the stock tumbles, and people panic and freak out.

Similarly, many people are attracted to Tesla, but they can’t handle the volatility. It’s undeniable that attractive stocks like Tesla have their benefits. They have great liquidity, higher stock prices, and rapid movements, which can lead to substantial profits.

However, they can also result in significant losses. Diversification is essential, and it’s not necessary to power all your money into one attractive stock. Sprinkle your money and diversify across different stocks to manage your risk effectively.

Comparing Stock Performance

Let’s take a look at the growth potential of Tesla compared to another stock like AAL. Tesla had a growth of 75% from May to June, which is phenomenal. However, AAL had a growth of 46% during the same period. It’s essential to understand that while Tesla performed better, other stocks can also yield good results.

Trading Strategy Considerations

When trading options, attractive stocks like Tesla can yield higher profits, but they also come with higher risks due to their volatility. On the other hand, less attractive stocks like Bank of America or CVS may offer lower profits but with reduced risk. It’s important to evaluate the risk-reward ratio and your risk tolerance when choosing stocks for your trading strategy.

The Danger of Attraction

Be careful when you start getting attracted to certain companies because all your attraction will gravitate to certain types of stocks. Having a basket of stocks that behave similarly can be problematic. If those stocks go down, your entire portfolio could be at risk. So, be open-minded and try out other stocks that may not seem as attractive initially. Stocks that appear boring or undervalued could turn out to be profitable trades.

Conclusion

The concept of attraction can be dangerous in the stock market if you concentrate all your risk on certain attractive stocks. Diversify your investments, and be open to trying out different stocks with varying risk levels. Don’t fall in love with a company to the point where you continue holding it even when it’s heading lower. Keep your mind open to different opportunities and always manage your risk effectively. Thanks for joining me in this video. Feel free to grab some freebies on our website and check out some of the great courses we have, along with one-on-one coaching and mentoring sessions. Thanks, and I’ll see you next time.

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