In order to stay in market, beginners in stock market should avoid some of the common but deadly mistakes which can erode their capital quickly.
Today we will mention some of the worst mistakes made by beginner traders which needs to carefully analysed:
- Zero Analysis: Beginners usually don’t do thorough analysis about the company before buying the shares. They either buy on someone’s recommendation or speculate the price in the hope that price will increase without any logical reason behind it.
- No Plan for trade: Experience people enter into any trade with well defined plan of entry, exit and stop loss . But beginners very unlikely have any plan about when to enter or exit a trade and how much capital need to be invested in the selected trade.
- Averaging Out loosers: One of the biggest mistake beginners do in the stock market is averaging out the loosing positions until the loss mount to a huge magnitude. Always remember to take the loss quickly if you don’t have the long term view . Also the stocks you have bought should be fundamentally good. Never ever average out Junk stocks.
- Excess Leverage And Trade Margins: This is another deadly mistake commonly done by beginners. Trade margins are usually provided by the brokers which can multiply your trading amount. With the hope to boost the profit people trade on heavy margins but 90% of the time a wrong trade on margin destroy the trading capital in a splash.
- Invest All at a time and don’t use SIP: Beginners don’t understand the power of compounding which SIP provides to the investors. Just for the sake of excitement and greed to make money faster beginners invest their capital all in one go. When market fall they aren’t left with money to averge their price. So Always prefer to buy shares in SIP mode that you can get a good average price for your stocks over the years.
- Over Trading: Beginners have to learn that trading too frequently can erode your returns to a level that it can turn your good profits into losses within a short time. So trade to an extent so that you can always absorb your loss and diversify your risk.
- No diversication and risk management: This is something very commonly ignored by the beginners. They don’t diverse their portfolio and keep investing in 1or 2 stocks. As the famous investor warren buffet said: ‘Don’t keep all eggs in one basket’. Its very important that you diversify your portfolio in different sectors with different market cap.
Hope beginners will get fruitful advise from above small article. Will come up with other financial topics soon.