The stock market looks immensely appealing to outsiders who hear success stories about people who made millions, and are convinced that it is easy to trade in stocks and earn profits, without realizing that the stock market also has the potential of making people bankrupt or at least making them lose a big chunk of their savings. It is therefore important to understand the working of the stock market and avoid a few critical mistakes to be able to make money.
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Starting with a bang
Very often, beginners decide to start stock market trading with a bang, committing all their funds at once. This is a big mistake since, as a novice, it is preferable to start small, with a small investment, and as the stock market operations become familiar and information about intricacies increases, more funds can be added.
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Putting a large amount in one stock
Investors often get so bullish or optimistic about a particular company that they decide to put their capital into that stock. This critical mistake may spell doom, since the whole investment may get wiped out. It is always advised by all trading experts to diversify risks, spread out investments, and have a portfolio of shares of different companies from different industries.
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Not keeping track of seasonal trends.s
All the stock markets across the globe have a dull season at a certain time of year. At such times majority of the stock prices fall-it is important to use these times to buy rather than sell, and investors must be on the lookout for the seasonal lows and highs.
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Trading without a strategy
Stock market trading is not easy, and requires a thorough understanding and knowledge of companies whose shares interest investors. Reading the financial details available, tracking price movements of stocks, and understanding trends with the aid of important indicators, helps shortlist a few good stocks for buying. However, a proper well well-planned strategy is important to avoid losing money.
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Trading emotionally rather than rationally
This mistake is made by experienced investors as well, who act on impulse, listen to tips from others, try to follow another investor’s lead, and do not rationally decide about buying or selling a stock. Stock trading is not a trial-and-error exercise, but there is a method to succeed, which requires organization, planning, and analysis.
Trading in the stock market poses many problems, and it is the investors’ risk-taking capability that brings them into this market in the first place. However, risks must be taken only up to a point, or else losses are likely to affect earnings. It is preferable to take a risk only with the amount an investor is willing to lose without being affected by it, and using only the profits to expand the portfolio of shares owned. While trading is short-term and yields quick gains, investing is a safer option since it yields dividends and also leads to earnings as the share prices appreciate. The important thing is to avoid crucial mistakes, to be able to continue trading, and not lose money.