More and more people are entering the stock market but almost half of them do not know what they’re doing. This leads to them incurring big capital losses and makes them think the stock market is simply not lucrative.
Here is a list of common mistakes to avoid when trading stocks to thrive in the market.
Lack of proper research
Many investors don’t research enough. This mistake isn’t just made by newbies or new amateur investors but also by seasoned or experienced investors.
People generally invest in companies, suggested by their friends and family or in those companies that they have heard of. This is not a sufficient reason for investing your money.
You need to find out the business model of the company and the financial position of the company to make an informed decision. So, you need to be updated with the share market news, trends in the market, and upcoming opportunities.
Having a short-term vision
Many people just ‘want to get rich’ by investing in shares. Sure they may earn by short-term investment but, this fogs their mind from creating wealth. Many investors tend to overlook the benefits of long-term investment.
This is also helpful for investors who are greatly affected by the graphs. Having a long-term vision makes you a lot less anxious when your company is not stable. You will have no negative emotion play and could receive higher capital gains.
Buying stocks with no volume
Some investors just look at the price of the stock and overlook the volume of the stock. ‘Volume’ in the stock market refers to how many stocks of a particular company are traded in a certain period. This is related to the liquidity of the shares.
If you purchase stocks with low or no volume, you will be stuck with it and no one will buy it from you. This is not a good sign in the stock market because as an investor you need to be able to buy and sell shares. Stocks with no volume will be a financial burden.
Allowing personal judgment to affect the investment decision
Emotions should be out of the equation when you are investing. Everything you do needs to be calculated and you should be able to predict the possible outcomes of the decision you made.
The investor should not take actions based on what he thinks is right but rather, on company analysis which has a concrete basis. Remember if investment feels like a gamble, you’re doing it wrong.
Lack of patience
The stock market is a very volatile place. There are highs and lows for all the different listed companies but, this should not scare the investors to buy or sell their shares.
Many investors sell their shares or buy new ones without proper analysis, which usually leads to them incurring losses due to excess transaction costs and limited capital gain.
Investors need to be patient and keep analyzing the market to make an informed decision and not make decisions based on an adrenaline rush.
Failing to diversify portfolio
This is a common mistake among amateur shareholders. They tend to place all their eggs in one basket. They tend to do this because the company is doing well and they expect the same to continue forever. However, this makes them vulnerable to high risk in case the company does not do well.
Diversifying your portfolio means diversifying your risk. You need to diversify the portfolio so that you do not have to incur a loss in case the company does not do well. When you diversify your portfolio
Over-diversifying the portfolio
Over-diversifying your portfolio can backfire unless you are an investment company with more than one professional investor. You should be aware of how much you can handle and what your limits are. More does not always mean good.
Sometimes, people overestimate themselves or sometimes they simply accumulate shares of different companies to the point they cannot keep track of them all. This is very risky considering how volatile the stock market is.
You may not grab the opportunity to sell your stocks on time or you may not notice one of your shares has dropped in value.
You may also like:
- Basics to know before starting investment in Share Market
- A broker platform providing new innovative experiences in stock trading: SAS(Stock Analysis Software)
- How much should you pay as broker payment
Conclusion
Investment can make or break a person. It depends on how patient he is and how fast he learns. Share this with an investment enthusiast who wants to start investing but cannot perform well. These mistakes are holding people back from reaching their true potential in the stock market.
FAQs
What is the biggest risk in trading?
The biggest risk in trading is not knowing what they are doing in the stock market.
What is the number one risk mistake traders make?
Many traders do not do their research well. They may do well for a short period but, this tactic will not work in the long run.
What are the biggest mistakes a trader should avoid in stock trading?
A trader should always make a calculated decision and not act on a whim. A trader not having a long-term goal can be one of the biggest mistakes a trader should avoid in stock trading.
What is the hardest mistake to avoid while trading?
Even an experienced trader cannot accurately predict the market. It is being impatient and not learning that are the hardest mistakes to avoid while trading.
What is the number 1 rule of trading?
The number 1 rule of trading is always diversifying your portfolio.