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Reducing Stress in Buying Stocks

Apr 28, 2021

By: Frank Kaberna

Buying stocks can create as much internal struggle as purchasing real estate or as little as choosing an outfit for today. The distinction between the two is a matter of expectations.

Passive investors might take their hard-earned money to the stock market a couple of times per year, if that, and even then their zeal can be crushed by a justified line of questioning: Am I buying too high? If I don’t buy today, will I miss out on profits? Will stocks be cheaper tomorrow?

Active traders who engage with financial markets on a more regular basis tend to reduce the weight of these questions because they usually lower expectations from large potential returns over the next several years to small ones in the following few minutes.

Anatomy of a Passive Investment

The stock market has moved higher by most indices’ measure if the lookback period is long enough. So, when looking at this same lookback period, investing in equities has proved profitable for those who’ve clicked “buy” during this time period. But if you’re still having trouble executing, cost averaging is a solid anxiety-alleviating strategy. Say you wanted to invest $20,000 in the stock market; instead of buying three Small Stocks futures today, an option is buying one today and placing orders for two more at lower prices.

 

SM75 \ Small Stocks Futures

TEMP_75_SME (77).png

Source: dxFeed Index Services (https://indexit.dxfeed.com)


Anatomy of an Active Trade

More active participants might use advanced statistics to influence their short-term purchases. For instance, stocks tend to rise more often than they fall (53.7% historical likelihood of increase), and they tend to rise with an even higher probability after a day of selling (55.6% historical likelihood of increase after lower close).* This is part of the reason why the “buy the dip” strategy is so popular. In theory, traders could buy SM75 futures after a down day, set strict mechanics for all trades at +/-$25, $50, etc., and realize a long-term profit if this probability plays out.


One tactic isn’t more “correct” than the other, and, actually, many people find that a mix of both can make for a diversified approach. When it comes to buying stocks in whatever term, though, a process that is realistic, calculated, and well-thought-out can help reduce the notion’s stress to that of picking a shirt that matches.

 

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Save Every Time You Trade the Smalls

The Small Exchange has also created a limited number of subscriptions for a one-time payment of $100 that give traders a lifetime of reduced exchange and market data fees when trading the Smalls.

For more information on the Small Exchange’s products and subscription service, visit smallexchange.com. And be sure to check out my new show on tastytrade, Small Stakes, where Pete Mulmat and I will show viewers how to navigate Small Exchange products every Monday-Friday and always on demand.

If you’d like to find out where to trade the Smalls products check out the list of brokers that offer their products, or tastytrade’s preferred broker tastyworks.


*Data on S&P 500 Index from 1990 to present

© 2021 Small Exchange, Inc. All rights reserved. Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information in this advertisement is current as of the date noted, is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading futures involves the risk of loss, including the possibility of loss greater than your initial investment.


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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