Are you a stock market trader or investor? If yes, then you do understand the volatility of the market and the risk associated with every investment. For those who like to take it up a notch and make high value investments, it is absolutely necessary to make careful decisions or end up losing money. There have been situations where small mistakes have led to considerable losses. By taking some precautions and avoiding certain mistakes, one can steer clear of such pitfalls. Of course, you can also take the help of an investment advisor to help you make better trading decisions and avoid making common mistakes in stock trading.
Everybody makes mistakes. However, to the general public, they may not always have severe outcomes. In day trading and financial stock investments, small mistakes have often caused the loss of significant trading profits. It is easy to jump to hot topics and leave out the basics. It is very easy to assume that you’ve got the basics covered but it is not as easy as that.
Here are the top 5 mistakes that set traders back.
Guessing and speculation can turn out to be lucky once. Just because you find a stock at a low and sell at a satisfactory price today has no relation with the scenario tomorrow. Picking up random stocks and purely depending on chance and good fortune in the long term is the recipe of a disaster. The thing with luck is that it eventually runs out. Moves that are supported by thorough research are more consistent.
Our Suggestion: It is always a good option to consult an Investment Advisor. With a research team and other support staff, they have better knowledge and grasp over the market and its movements. A certified investment advisor will be of great help to your cause.
A diversified portfolio means constructing a portfolio in which there are numerous securities. This means that the weight of any security is small. A well-diversified portfolio is every investor’s dream. However, constructing one involves extensive security analysis which is tedious. Often traders only read and research about some specific stocks. They do not study the industry. This narrow view hides important facts and figures which are required for an objective analysis.
Our Suggestion: A very easy way to fix this mistake is to invest in mutual funds. Since they are bouquets of different stocks, they instantly diversify the portfolio. You can also select a theme-based trading strategy which allows you to use specific trading signals to make trades as per your preferred style. It is a smart move to invest in theme-based investment strategies.
Humans are emotional. However, emotions affect our decision-making capabilities in various situations. For example, Mr. Rajan is having a great day and he has earned a good profit in his first few trades of the day. He gets excited and starts to take over-optimistic decisions. He fails to understand the faint indicators which could have alerted him timely. Logic and analysis have been washed off by over-excitement. To take decisions when extremely happy or sad is like playing with fire. The risk of getting burnt is at an all-time high. Trading should be practiced with a level headed mind. Trading requires vigilance. Extreme emotions lead to spontaneous decisions which can be brutal.
Our Suggestion: Take control of your emotions and trade with well-thought-of plans. Refrain from trading impulsively. To adjust and attune a plan in the short term is a smart move.
A few good trades increase a trader’s confidence drastically. It is easy to feel that you have mastered the market, and, nothing can surprise you now. However, being overconfident can result in catastrophic losses. The market and its forces are far and wide. It changes abruptly, without warnings.
Our Suggestion: It is advisable to keep an open mind and objective view. Factoring in the changes and adapting to the changes is essential. You may feel that your analysis is correct, but with time you must not miss the faint but important cues. Overconfidence masks objectivity. It is important to understand where to draw the line.
It is very convenient to blame a loss on bad luck. However, it is very important to identify the error and how it came to be. Learning from your mistakes should be the top priority. This is how you can be sure to not repeat the same mistake again. Avoiding analyzing a bad trade creates a whole domain of factors and performances that you simply don’t understand.
Our Solution: Analyze the bad trade and fairly understand the root cause of the error. It is advisable to keep your emotions at bay. Find out where your analysis and predictions went wrong. Be purposeful and unbiased. Make notes specifying the learning and jot down some key points which will help you avert such a situation in the future.
These common mistakes in stock trading often go un-noticed by people despite the implications being quite critical. Probably, people fail to accept the shortcomings and hence, they go around blaming everything else for their losses. It is important to understand that mistakes are fundamental tools of learning and thus should not be left unresolved. To gain insight and knowledge from a mistake is the end goal. It is befitting to say that many of these common mistakes can be avoided by taking the help of a certified investment advisor who can analyze your trading style and provide research-based recommendations that will help you make better decisions.