In my post Part II: Trader Mistakes in Diversifying Stocks (Part II) I have explained about the negligence of stock traders when using a diversification strategy...
If you read my part II, you may ask, "so what's the solution?" Now, I want to give you a little idea, how to use the right diversification strategy.
Okay, I mentioned a little more in part II, that a common mistake of traders is that they like to buy and keep a lot of stocks, even up to 10 stocks, so it is difficult for them to monitor their movements, and automatically the return they get is smaller, because the funds must be divided between in many stocks. So, the solution is:
First. We recommend that you keep only 2 - 5 shares. Don't be more than that. The goal: to make it easier for you to monitor your stock price. And one more thing, so you don't have to divide your funds to buy too many shares. So, you can enjoy a bigger return..
Second. Don't be easily tempted by the green Index. In my post in part II, I provide facts about the reasons why traders are tempted to buy lots of shares because traders itch when they see stock prices continue to rise. If you think like that, then you can't control your emotions. You need to know that when our stock index (JCI) is green, the average stock price usually increases as well. In fact, some stocks that previously fell steadily then turned up very fast. Of course, it's irrational if you buy all the stocks whose prices are rising, right? How many stocks have gone up in price? It must be more than 10, especially if our stock market is doing well.
"But sir, the stock price keeps going up, what about it? Did you buy it? How come it's a shame if you don't buy it, you won't get the money later"
My answer: Just let it go... If the stock price goes up, you don't have to regret it.. Like I said: It's irrational to buy all the stocks whose price goes up.... The most important thing is that you have a fund plan for diversification.
"What kind of plan?"
I'll give an illustration of a fund plan, which I also often use:
Let's say you have a capital of IDR 12,000,000 for stock trading. Then, you decide to invest in only 3 stocks... So, it's best if your funds are divided equally between the three stocks.
If you divide by 3, it means that for each share, you put in Rp. 4,000,000/ 1 share... So, if you have made a plan like this, it means that you have to choose 3 stocks that if you can benefit from the technical analysis you use. Where, each share you buy with a fund of IDR 4,000,000.
Do not violate this plan yourself. Violating for example: when you have used IDR 4,000,000 to buy one share, it means that you have IDR 8,000,000 left to buy 2 more shares. However, you then see a lot of stocks whose price has gone up, and then for fear of "missing the train", you buy all of them right away. You put IDR 1,000,000 in Indofood shares, then IDR 1,500,000 in Ace Hardware shares and so on until you have more than 8 shares.... Finally, the return you get is small, because you have to divide your funds for too many stock options. This means you have violated your own plans.. Remember, lots of traders are like this...
"Then, what is the purpose of why I have to have a plan like this?"
I have already explained the importance of proper diversification so that it is not difficult for you to monitor stock prices. And one more thing, all is to train your emotions as a trader.. Uncontrollable emotions of traders, cause losses and funds for managed trades to be very not optimal.. Traders often ignore this and often only focus on technical analysis. In fact, controlling emotions, one of which is by complying with your own planning is IMPORTANT.
