You’ve probably heard that trading stocks is a lucrative venture. Maybe you’ve read that some of the world’s wealthiest individuals made most of their money trading stocks. So you find a broker, set up an account, and create a portfolio. But contrary to the tales of how you can get rich quick trading stocks, you are still struggling to break even. Could you be making any of these four common beginner stock trading mistakes?
Not Understanding a Company’s Business Model
When you invest in stocks, you are essentially buying part of a company. Your sole aim should be to make profits and nothing more.
But far too many new traders choose the companies they will invest in for sentimental reasons. Perhaps they love a particular product, or a specific company is enjoying positive attention from the media, so they think it is wise to invest in it. This can be a costly mistake.
Before you buy into a company, take time to understand its business model. What have been its profitability trends in the past? How profitable is it likely to be in the future? Who runs the company? Do they have a track record of positive management and helping companies grow?
Unless you base your decisions on sound financial logic, like the nuggets provided by this automated trading software, you will be setting yourself up to fail as a trader.
Not Having a Goal
Another common mistake that beginners in stock trading make is going into the venture without setting goals and boundaries. This, too, can make it much harder for you to earn any substantial returns from your investment.
Before you choose a company to invest in, you need to ask yourself some questions. First, what do you like about this company, from a business point of view? Is it the management style, its continued upward growth, or its global reach? How do you expect it to perform in years to come?
It would be best if you also created an exit plan for when things get rough. What would make you sell your stocks in the company? What is the ultimate low in stock pricing that you will not go below? If the company undergoes a merger or acquisition, are you sticking with it?
Working with Emotions
A quick route to making monumental losses trading stocks is making emotional decisions. Unfortunately, this happens more often than you might think, and it is a trait you have to guard against vigilantly.
The key reason why people make emotional decisions is that they listen too often to sensational news about their chosen companies. The solution, therefore, is to be discerning with what you hear about your investments.
Additionally, remember this is not a get-rich-quick scheme. It is a long-term investment, which means you should be willing to weather the occasional storm and not jump ship at the first instance.
Timing the Market
Some stock market traders also think that they can time the market to make astronomical profits in a short time. Experienced traders say this is more a fantasy than a realistic goal. Rather than wait to trade stocks when the timing is right, it is better to spend more time making small trades consistently.
Stock trading may seem overly dependent on luck from the outside, but it is really about making cautious and calculated moves. If you want to wade into the waters of stock market trading successfully, be sure to avoid the four beginner mistakes discussed here. Cautious optimism will serve you well in your endeavor.
Image | Source