Stock trading isn’t for those who can’t take a little risk in their lives. The market is a scary and volatile place to be in the middle of, and for that reason, it’s important not to make these key mistakes.
Not Sticking To Your Trading Plan
When you first set out to dabble in the stock market, you’re going to want to set a cap amount to invest. This way you won’t get caught up in the emotion of gaining/losing money and wanting to continue gaining or replace your losses by means of trading more stock. Give yourself a budget to work with and don’t dip into your savings no matter what!
Don’t Let Losses Add Up
While historically, the market always goes back up over time, this isn’t true for each individual stock. If you throw in a chunk of money to a particular company, and it begins to tank, you need to differentiate a loser from a temporary dip. Beginners will tend to hold on to a stock that’s dropping for a little too long rather than taking a small loss and quickly moving on. Before investing actual capital, it could be a good idea to practice trading on a trading simulator.
Don’t Trade Too Often
When you’re new to the stock market, you’re excited to make money fast. Beginners tend to learn the hard way that trading too often can actually hurt your gains rather than help them move along faster. Not only do trades mean a taxable transaction occurs, but trading too quickly doesn’t allow your portfolio to grow. The overall performance of your portfolio can suffer tremendously when you trade too often.
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Be Careful When “Everyone’s Doing It”
Just because everyone’s doing it, doesn’t mean it’s the best move for you. Odds are if all your friends are talking about a particular company’s stock, they heard it through the grapevine or on the news. If this is the case, everyone and their brother has been buying the stock, driving the price up to be more than it’s even worth. You don’t want to buy when everyone is already all in, because once the hype dies down, the price of the stock is going to correct it and you’re going to lose money. There are definitely exceptions, but as a rule of thumb, follow the trend, but get out faster than your friends.
Skipping Due Diligence
Research. Research. Research. There is nothing more important than looking at the company’s financials, officers, public relations, and future endeavors when considering investing in a company. Trading simulators typically provide a platform where you can investigate all of these factors as well as watch real time streaming quotes and charts to supplement your research. Public company’s have to be transparent when it comes to financial statements. In order to make an educated decision on where you’re putting your money, it’s a good idea to read up on the facts.
Watch Out For Beginners Luck
Being too confident when it comes to investing in the stock market can become a very dangerous characteristic. People usually get involved with trading stocks for a reason (a bull market, a popular company going public, or a stock all his/her friends are buying). Whatever that reason may be, you’re probably going to see a win on the first investment. Once that winning streak ends however, you don’t want to be the person who learns not to be overconfident by losing all their money.
Trading can be extremely profitable if you trade with caution and make educated decisions. Many people relate it to betting, because, well, you are betting that the stock you choose will do well (unless you’re shorting the stock of course.) Trading can definitely get the best of people and leave them with a lot less than they intended exiting with when they first started out on the venture. Practice with trading terminals before you use real money, and never make these 5 common mistakes.