Common mistakes to avoid while investing in stock market
Stock market has been one of the biggest investing ground for many people over the years. However, instead of fruitful returns from stock market many times people ends up incurring huge losses from the investment. There are multiple reasons due to which people suffer these losses. The losses incurred can be summarized under the common mistakes that people do while investing in a stock market.
Timing the market: Predictions projection and analysis of stock market are highly common. But instead of waiting for the right time to invest in the stock market, starting small and immediately is more sensible and reliable.
Following tips: If some one provided tips for investing money, instead of blindly investing in the stock one should do complete research before investing.
Borrowing for investment: Investing money from loan is a grave mistake. In case of profit from stock the profit get negatively affected by interest on loan and in case of loss in stock market a person has to bear double loss with payment of loan and loss from stock market.
Being Sanctimoniousness: Gaining from stock market many a times blind sight people from actually knowing the complexity of the market. Hence, a person should be open sighted while investing in stock market. Else, unforeseen complexity can actually make a person incur huge loss from investment.
Holding onto DUD shares: Expecting share prices to rise even after a short span of time is gone from the time of investment is actually not beneficiary. Holding on such DUD shares with big company names backing them can actually result in huge losses. Hence it is important to get rid of such DUD to improve ones portfolio.
Short term investment: One should not invest in stock market with aim of short term return, unless as in case of DUD shares. Long term investments are more fruitful and beneficiary to any person investing in stock market.
Other than the important mistakes that is commonly seen in stock market a person should also keep in mind avoiding:
Being impatient: It is highly important for a person to be patient while investing in stock market, it because stock market is unpredictable. Hence, if stock market crashes down after your investment, please we patient enough for it to recover, do not rush to sell of your stock immediately.
Panicking: It is suggested not to panic in case of fall in stock market, it is because even if the stock market fall, it will eventually again rise and then stabilize, all these are part of stock market cycle.
Blindly Following trend: It is suggested not blindly follow what the experts predict, or analyse about stock market. It is because at the end of the day, they are also human, and stock market is highly complex and unpredictable. So it is important to do some research before investing in the stock market, instead of blindly following the trend, as experts may also go wrong.
Investing because share prices are low: Investing in stock market just because the share price is low and thinking that it will rise after a period of time, is one of the biggest mistake that is commonly seen. It is because people fail to analyse why the share price is low. Share price can be low for multiple reason, based on how the market is functioning. Hence, it is suggestible to do a thorough research about the share, when you see the price of the share is low.
Investing all money in equity: It is always suggestible to diversify your investment. In case of crash down of stock market if all your money is invested in equity, you may end up being penny less. Hence, diversify your investment by investing in debts, mutual fund, fixed deposits and many other options available. This will provide you cushioning even if the stock market crash.
The above are the common 11 mistakes that a person do while investing in a stock market.
Common Mistakes of Trading
It is said people learn from their mistakes. However, too much mistakes may be harmful for anyone. Today we are going to highlight 10 common mistakes that people do while trading in stock market.
Being emotional about own views: Emotions controls human behavior, hence it is necessary to control your emotions while trading. At times, some viewpoint of a person can actually impact into losses during trading. However, instead of being emotional about the decision, they should look forward to alternative ways to correct the situation.
Never average a losing trade by taking leverage: Traders generally follow a pattern which is to increase the size of the position when the market is going against them. The intent is to reduce the average entry price by assuming extra risk in the hope that the stock turns around and they can exit at a break-even point. However, as a result, the outcome of such actions is that the market goes against them. This results in investors exit their positions at a larger loss than they initially thought.
Control aggressiveness when losing and conservatives when winning: It is generally seen people being more aggressive when losing and as result they try to recover their losses from single trade by ambitiously trying to reach break-even point as soon as possible. However, when they are making money, they become conservative and book profits too soon. To be a successful trader you need to be absolutely reverse of this scenario.
Never try to pick the peaks and thoughts: Timing the market is important during trading, but expecting to buy a minimum and selling at the highest peak can result in trouble. Instead it is advisable to play the trend or range, to be on safer side.
Never go against the trend: It is always suggestible to go with the flow of the market, it is because predicting the market is almost impossible, hence trading in stock which is providing fruitful result is more sound idea rather than experimenting and ending up in a loss.
Do not expect the market to be rational: It is best to give the market the benefit of the doubt and listen to what it is saying rather than trying to impose rationality. As a result if the expectation of the future changes, then the effect on the stock price will happen immediately and not in the future. Hence it is important be patient and act according to the requirement of the market instead of forcing it or expecting it to be rational.
Do not enter trade without a plan: It is highly important to have a pre-defined sound plan before trading in the market. As this pre-define plan will help you scale in and out of a trade without aimlessly looking for external confirmation.
Do not buy illiquid OTM options: Traders often fails to realize other factors that actually effect the market other than volatility. They should take into consideration factors like Time decay, liquidity, delta and many more that can actually effect the market. Since, Illiquid options generally have higher premiums and since they don’t have liquidity, the price deteriorates very quickly. This can actually result in huge capital loss for the traders.
Do not overestimate winning streak: People invest money in trading hoping earn and gain from it. However, every stock market trading is highly unpredictable, hence blindly investing and trading of stock, which have provided you with winning and gain from the market can actually result in overestimation of the trade and ultimately resulting in huge losses from unforeseen market situation. Hence, it is advisable not to overestimate the winning streak and staying updated with market situation before trading.
Do not over trade: Overdoing of anything is actually harmful to anyone. Hence, it is highly important to take a break and analyse on the pattern and behavior of your trading in relation to the current market situation. This can actually help you in long term trading and can be more beneficial than overtrading.
Mistakes are the pillar to success however to many pillars can actually block the path to success. Hence it is highly important to overcome these basic 10 mistakes that traders do while trading in stock market.