Online trading is easy and hassle-free. You can trade in the stock market from the comfort of your home. You can just sit in a chair, enjoy your tea, and trade in the stock market. Things have become so simple. Yet digitalization comes with some risks. In this article, we will deal with top mistakes committed by amateurs when trading in the stock market.
1. Not understanding the basics
Every profession needs you to complete some sort of degree. For example, if you want an IT job, you will have to take a 4-year engineering course, if you want to be advocate, you will have to learn about law. This is not the case in the stock market. People just come in and expect to earn huge profits from day one. You should never invest in the stock market if your basics are not clear.
2. Don’t have proper investment plan
You should have a well-defined investment plan. You should know how the answer to the following questions:
- What is your investment horizon: short-term, mid-term or long-term?
- How much money you want to invest in the market?
- Do you want to do lump sum investment or SIP?
- What is your risk profile?
- Which sectors you want to focus on?
- How much money you can afford to lose?
When you have answer to all these questions, only then you can enter the stock market.
3. Investing on the basis of stock tips
There are so many people selling stock tips in the market. You should never believe them. Understand that you are risking your hard earned money. Why would you go to risk it on the recommendation of someone you don’t even know? Moreover, some new investors try to copy the portfolio of some top investors. This is again disastrous. You need to do your research and select stocks as per your requirements.
4. Not diversifying
Diversification is very important in the stock market. You should not put all your eggs in one basket. You should select some stocks from different sectors. This way you would be able to hedge your portfolio when one sector is not performing. Moreover, you should not invest all your money in the stock market. Invest something in the market, something in bonds, something in crypto, etc. Diversify!
5. Selling out in panic
Most new investors don’t understand the market cycle. They would love it when their stock moves 10% in a day, however, sell out in panic when their stock is down 10% in a day. When you are investing in some stock, every fall should be taken as an opportunity to buy more. If you are in panic when the stock is falling, you should never invest in that stock.
To sum up
Whether you want to do investing or trading, you have to partner with a broker. There are so many brokers in the market. However, you should select only the best of them: 5paisa.