Doing homework is tedious but it kick-starts the path to improvement. Why would homework be important for stock market investing?
By homework we mean studying all the trades you made in 2024, one by one. An objective and honest review can take emotions out and help you understand what worked and what didn't. The improvement kicks in when you understand your flaws.
There is no better time to do this post-analysis than at the end of the year.
A good starting point is to see if your investment goals were met. Did you achieve your profit target on specific trades and for the entire portfolio? How did you offset risks? What trading rules did you follow?
Did you pay attention to the stock market trend and increase and reduce exposure in sync with the indexes?
A common investment goal is to beat the S&P 500. In 2024, that was not an easy task since the benchmark index gained more than 25% as the year came to a close. The Nasdaq was headed for a gain of more than 30%.
If you chose an S&P 500-tracking exchange traded fund, you would have merely matched the index. This is where individual stock picks increase the odds of outperforming the indexes. But which trades were successful and which failed?
Putting some science behind the art of stock picking helps: Did you pick stocks that were buzzwords or did you do a deep dive into the company's fundamentals? Did you pick industry leaders? Your odds of success are higher with the industry leaders that have superior fundamentals.
Read Our Full Special Report: Your 2025 Financial Action Plan. Plus, Tax And Investing Strategies for Retirement Savers And Smart Money Moves For The New Year.
A Method To Review Trades
An effective learning method is to print out a daily and weekly stock chart for every trade you made in 2024. Using a black or blue pen, mark all the positive traits of the stock, and with a red pen mark all the negatives. Note the time when you bought and sold shares and your reasoning for each.
This will give you an illustration of your thought process. It may reveal bad habits you hadn't realized.
See The Latest Updates To IBD Watchlists
Finding Stock Market Leaders
Chart reading is often the first step to building a watchlist. Did you pick stocks that were already in an uptrend? Did they show market leadership with a strong Relative Strength Rating? Were they stocks that funds were buying? Also did you buy them as they broke out from a base or rebounded from a key moving average such as the 50 day moving average? Did you study the weekly and daily charts and check intraday movements? All those are important considerations.
For trades that failed, did you cut your losses using sell rules? Protecting capital is the first rule of investing, so you must follow sell rules when a trade is failing. Cutting losses when a stock falls 7% below a buy point or if it falls below the 50-day moving average in heavy volume are two important ways to protect your money.
But selling into strength is also important. After a stock has rallied, taking profits before the stock pulls back can prevent you from giving back precious gains.
How To Invest In Nvidia And Beyond In 2025: Draw Lines, Not Conclusions
Though it is possible to time your trades, your timing cannot be perfect all the time. Analyzing when you bought and sold stocks too soon or too late can also help you improve future trading.
Also read up on the stock market outlook for next year.
Please follow VRamakrishnan on X/Twitter for more news on the stock market today.
