When talking about stock market trading, several things are important and matter in intraday and positional trading. Stock market investments can prove to be a wild ride for investors, especially if they are a newbie in the field of trading. Various investors take a lot of time before they start feeling comfortable with stock market investing. There are many tips, tricks, do’s, and don’ts when talking about stock investments. Following these simple do’s and don’ts helps investors earn a fair share of profit from their investments.
Do’s and Don’ts in stock market trading
Here are some do’s and don’ts that beginner investors and traders should keep in mind and follow when entering the world of online stock trading. These will help them reduce their mistakes and make wise trading decisions.
Do’s of Investing in the Stock Market
Here are the top five do’s of stock market investments and trading that every beginner trader can follow:
- Getting an education: One of the most relevant, simple, yet essential, do’s of stock market investing is to get yourself educated. If you want to succeed in your stock market investment journey, you need first to start learning the stock market. Getting an education not always means that you need to enroll for a course or get admission to an institute. It primarily means to start learning the nitty-gritty of the stock market. The best way to start learning about the stock market is through self-education. There is a lot of free information available on the internet, which you can access at your convenience. If you wish to take your learning to the next level, you can enroll in some good online stock market course.
- Starting small: When we start learning something, it is always better to take small steps. For instance, if you are learning to swim, you won’t go straight away where the pool is deep. Similarly, when you start investing in the stock market, it is always better to start with small investments. Invest the lowest possible amount according to your risk profile, and as you start learning, you can increase the amount of your investment.
- Start Early: Getting started with your finance as soon as possible is one of the most important steps towards a life of financial security and independence. When you are young, you are in a better position to take the risk, than the older days of your life. Moreover, time is something that plays an essential role in stock market investments. It is thus always advised to start as early as you can in with your investments. Remember that Warren Buffett bought his first share when he was just 11 years old?
- Have an investment goal: It becomes easier for you to plan and monitor your investment if you have a predefined investment goal. Having a goal set in stock market investment is essential as it keeps you motivated and keeps you on track while you are on your investment journey.
- Research before you invest: The primary reason why many people fail in their stock market investments is that they do not put in the initial effort required before putting money in a share. Be it a beginner or an experienced investor, every investor needs to research the company before investing the desired amount. It would help if you learned about the company’s fundamentals, its financial statements, various ratios, the management, and more. If you don’t want to suffer losses and regret your investments, you need to research well before putting your money in stocks.
Don’ts of Investing in the Stock Market
Here are the five basic yet essential don’ts that every beginner trader must keep in his mind:
- Investing is not gambling: Always, always, always keep in mind that investing in the stock market is not gambling. Refrain from putting your money in random stocks and then expect profits out of it. You might make quick profits from a single random investment, but that does not hold for every trade you make.
- Don’t have unrealistic expectations: There are incidences when investors have made up to 500% return on their investment, but this might be their luck. Always keep in mind that having unrealistic expectations from the market can lead to losses. The key to succeeding in stock market investments is to set a realistic goal. Expecting a yearly return of 12 to 18% is feasible as it is considered good. This can prove to be fruitful in the long-term. Further, assuming that everyone investor gets the same return from their investment is a big no.
- Don’t over trade: Prevent yourself from over-trading. When you trade frequently, you are paying brokerage and other charges every time you make a trade. Thus, don’t buy or sell stocks too often. Trust your research and confidence and make a trade only when necessary.
- Don’t make emotional decisions: The human mind is a complex device, and thus our decisions are affected by various internal and external factors. When investing in the stock market, prevent yourself from making emotional decisions. No matter how attracted you are towards a company, please don’t invest in it based on your liking. Instead, conduct thorough research, understand its financials and see the company’s future potential before buying shares.
- Avoid unnecessary risk: Risk and return go hand in hand when talking about stock market investments. A hot stock might generate a higher return but, at the same time, can have a high risk associated with it. Investing all your money in such a risky share expecting higher returns is not at all a wise decision. It would be better if you never take unnecessary risks when investing in the stock market. The risk and reward of your investment should always be balanced.
The do’s and don’ts mentioned above are just a list of few measures you can take to safeguard your investments. This list has many other precautions that you need to take when starting stock market investments. These points are just a guide of steps that can help you avoid losses. There are a lot many do’s and don’ts you’ll learn from your personal experience while trading.