If you are stepping into the stock market, this is no easy task. You must be thinking there are thousands of individuals buying and selling securities and they are pretty successful. I can be too. When it comes to online trading, a profitable outcome is not the result of luck. Instead, you need to apply certain principles to take advantage of the opportunities.
Intelligence and a superior IQ are not the prerequisites of success. Experts say that anyone who has brainpower can make it through the stock market. Peter Lynch says “if you can make it through 5th-grade math, you can trade.”
Here are tips all beginner investors must follow:
#1: Set Your Goals
Before you get started, ask yourself why are you investing in the stock market? Are you going to need the cash that you are investing back in 6 months or can you forget it for the next 5 to 10 years? Are you investing to buy a home or for the college expenses of your children?
Before you invest, you must know your purpose. If you think you might need your investment in the next few years, then don’t invest in long-term instruments. Consider another investment because there is no certainty that any capital will be available when you need it. Once you know how much capital you will need in the near future, you can calculate how much to invest in a particular type of investment to secure your financial future.
#2: Don’t Follow the Stock Gurus Blindly
As you get more involved in trading and investment, you will find an army of market gurus to give you recommendations every other day. They sure are experts but they don’t have any control over the market conditions. That means you shouldn’t follow the stock gurus blindly. Do hear what they have to say but don’t forget to read independent reviews. Verify the information and then make a move.
#3: Understand Fundamental and Technical Analysis
It has been observed that traders are mostly on a single track. They either invest on the basis of fundamental analysis or technical analysis. Fundamental means you will focus on undervalued stocks and technical means you will focus on stock charts. It’s imperative to understand both these concepts and use them accordingly.
#4: Leave Your Emotions at the Door
When it comes to investing, you need temperament. You will have urges alright but you are only successful if you control them. Otherwise, you will get in trouble. Warren Buffett says you must lead your investing decisions using your head not your gut. It’s true when trading activity is triggered by emotions, you are likely to hurt your returns. In other words, leave your emotions at the door or they will cloud your judgment.
#5: Diversify Your Investments
Diversification is essential for anybody whether you are a newbie or experienced. Never put all your eggs in one basket. You need to spread your wealth to spread your risk. In this way, you will know when to liquidate your investments before they turn into a loss.
Buy different types of investments and pick different industries. Go for both long-term and short-term investments. As you diversify your portfolio, one bad event will not drown you in catastrophe.
#6: Adjust Your Profit Expectations
You will hear a lot of people saying that the stock market is a quick way of making your money grow. It is true that a stock price can double or triple over the years but you can’t get rich on day one. It is never appropriate to chase big wins either. Otherwise, you will be forcing trades that are not even there. No doubt it is these kinds of expectations that kick you out of the game before you even get the chance to do anything.
#7: Keep the Long-Term Perspective in Your Head
Often, when newbies start they keep certain goals in their head. For instance, I will use my profit to pay the rent or go on a vacation. If that’s you, you need to stop! The stock market can only bring profit if you are in it for the long run. Those who pull out their investments whenever the market takes the slightest turn can’t move forward. So make long-term strategies your focus. This will allow you to build your wealth slowly and safely. And don’t plan on using the profit you make for short-term goals.
#8: Do Not Overtrade
Don’t obsess yourself with trading. It’s perfectly fine to check in your stocks once in a quarter. You don’t need to check their performance every single day though. Your focus must never be the share price, rather the value of the company. That’s why you invested in that stock in the first place, right? The only time you need to worry is when the business of the underlying company has changed. Or something happened that could affect the long-term outlook of your stock.
A slight mistake in judgment and you will end up losing money. That’s how tricky things can get. So start with these tips and hire a CFD broker if you must to assist you in the beginning.
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