Investment Mistakes Every Beginner Should Avoid
Trading seems very easy and everyone's cup of tea for several investors, but it's not. Instead, trading in the stock market requires a lot of patience, investing discipline and mostly experience in analysing the market trend. If you fail to understand the stock market, you may end up occuring losses and losing capital. Retail investors without developing their knowledge jump directly to earn profit and end up losing money. It is okay to make mistakes as a beginner but you keep repeating such mistakes and don't improve. Becoming a successful trader or investor will remain your dream.
So, here's the mistakes to avoid at any cost
1. Lack of Planning Capital Protection System
This is the first and most basic mistake that every new trader performs while entering the stock market. As they get excited by wondering how to quickly become rich from the stock market. Capital Protection is the first step before starting your trading journey, without capital you can't do anything except looking at the stock markets. Lack of planning capital protection won't give you desired results. If you have understood to plan your capital risk and trading style with a well-framed plan you can reap massive profits even in the volatile market.
2. Chasing Penny Stocks
For new traders, penny stocks will look like a great idea where you tend to think you can buy a large quantity with little funds and expect to get huge returns. You tend to believe that bluechip stocks are costly and don't fit in your investing criteria. Unfortunately, you are wrong, Penny stocks, at most times remain volatile and mostly they are considered as poor companies with poor performance. Most of the returns on penny stocks will depend on luck.
3. Timing the market
Don't dare to time the market. Every beginner starts trading based on their personal bias. In most of the cases, new investors tend to trade only based on the companies they have known or have heard from friends and family. No one can be perfect in trading. But, you have developed the art of identifying the quality stocks with technical analysis, you can increase your accuracy of stock selection and practice entry-exists.
4. Averaging down
Many traders hold their position even though the stocks have massively drained their capital. Investors refuse to sell such holdings and in result the stock keeps draining your portfolio. Many times, traders buy more quantity as the stock price declines and wonder if they have averaged their loss. Unfortunately, you are wrong. Instead, you have bought more quantity than your risk which will invite more capital loss. One can learn about position sizing to avoid such mistakes and trade as per his/her risk appetite.
5. Blindly Believing on Market Rumours
You will always find from various social media platforms and get to know from your near ones about stock tips, market news and sensitive information of the price of the stocks. A trader uses this information by personal understanding about the market moves. You should filter out such information carefully before making any decision to buy and sell any security, otherwise you will end up losing money. These are 5 common mistakes that every new investor or trader should avoid at any cost while trading in equity. You should understand the market trend and how the stocks perform and try to make decisions based on proper research without any emotional bias.