(Newswire.net — February 7, 2021) — Over the years, there have been many stories of people making bank with stock trading. It has brought more newbies to the market to handle their own affairs. While stock trading can seem like a quick way to make a buck, that’s not always the case. Here are five killer mistakes that you should work to avoid as you get started.
Not Going Into A Trade With A Plan
One of the most common blunders that newbies make is going into a trade without a plan. Master investors know that they need to have a well-defined plan before going into the trade. This helps to take emotion off of the table as it can heighten when you’re in the midst of the trade. You should have a clearly defined entry point, exit point, amount of capital that you’re willing to invest, and a maximum loss that you’re willing to accept. Make a plan and stick to it, no matter what.
Chasing Performance
After an asset class does good for a number of years, it becomes an area of attraction for newbies. They go into the idea thinking that good performance over the years is all they need in an investment. The truth is that chasing performance usually ends up in bad trades. If an asset class has been doing good for two years, then realize you should’ve invested two years ago. Don’t fall into the trap of spending ‘dumb money’ by investing in an asset class for the sole reason of chasing performance, as you’ll likely meet its down cycle.
Ignoring Their Risk Tolerance
Every investor has a different level of risk tolerance. You need to figure out where you stand on the scale so that you can make investments based on your tolerance level. No one likes losing a lot of money in the market, but some people can accept a large loss for the possibility that they may make a big gain. For others, losing the slightest bit of money can be devastating. Figure out your risk tolerance level, and never invest more than you’re willing to lose.
Not Defining A Time Horizon
A time horizon is simply defined as the amount of time that you’ll have to invest your money before you need to use it. For a retirement plan, this time horizon may be 30 years from now. For a college savings fund for your child, this could be 10 to 15 years. Take a moment to define what your time horizon is. This will assist you in figuring out just what sort of investments you can make that will fit within your time horizon. Don’t make the mistake of just jumping in headfirst and trying to make as much money as possible.
Letting Losses Grow
Every investor deals with losses from time to time. Understanding how to cut your losses and move on is a necessity in the stock market. Many newbies get stunned by their first few losses that they try and wait them out. Without swift action, this usually lands them in enduring more losses and severe depletion of their capital. You must be able to realize the loss when it happens and take immediate action to cut your losses before it’s too late.
As a stock trading newbie, there are a lot of lessons that you’re going to learn. The best way to speed up the amount of success that you experience is to learn from those before you. Start by implementing tactics to avoid the five big mistakes that we went over above.