The stock market’s total value at the end of 2022 was $40,511,838 million, so it’s no surprise that there are opportunities to make massive sums of money by becoming a trader.
However, although plenty of people have made millions on the stock market, there have also been those who have lost everything they own. Before making a single trade, you should learn about the most common beginner stock trading errors you should avoid at all costs.
While no one can guarantee you’ll make a fortune, knowing what trading pitfalls to sidestep can increase your chances of buying and selling stocks at the right times.
Let’s take a closer look.
1. Having a Rose-Tinted View of Stock Trading
You’ve seen all the Wall Street movies showing the easy money that can be made and the party lifestyle, but real life can be very different. If you think you’ll be able to make a few trades each day and become a millionaire by the end of the year, you’re likely to be disappointed come December.
You need to be realistic when thinking about stock trading profits that you’re likely to make, and you should remember that it’s also possible to lose money. If you know what to expect, you’ll have a more level-headed approach when starting out in the stock market.
2. Not Having an Investment Plan
Trading on the stock market requires a well-considered approach. You need to know which types of stocks you’re interested in, how to evaluate a stock’s value, and decide how much you have to spend. It’s also vital to have an entry and exit strategy that will help you make the maximum profit while still protecting you against unnecessary risks.
When you have an investment plan, make sure you stick to it. Changing your mind when stock prices are fluctuating can put you under pressure and lead to you making naive decisions.
3. Not Considering Your Risk-Tolerance
Your approach to risk will play an important role when it comes to your stock trading strategy. Should you take a devil-may-care approach and look to make massive profits in a short space of time, you’ll have to accept that you could also lose big. If this makes you feel queasy, then you should be more risk-averse.
Although this may be a less exciting game plan, it will also help you hedge against potential losses. Instead of investing in start-ups, you can buy stocks in established companies that have a strong trading record. These types of investments might go down in value, but this is less likely than with a company that could turn out to be a flash in the pan.
4. Buying Stocks That Have Peaked
It can be useful to follow stock market trends and try to anticipate what will happen next. The more knowledge you build up, the better placed you’ll be to make informed stock trades.
But you shouldn’t rely on trends too much as they can only last for a certain amount of time. No stock goes up without coming down, and you should consider if a stock has peaked before investing. After all, if it’s been on an upward trajectory for a long time, this only tells you that the stock was successful during that period, not what it will perform like in the future.
5. Listening to the Wrong Advice
There is no shortage of people wanting to give advice when it comes to stock trading, but you should avoid anyone who makes offers that sound too good to be true.
Instead, focus your attention on working hard and learning about the most effective trading concepts from reputable stock market courses. Getting advice from knowledgeable and experienced stock market professionals is one of the best ways to pick up expert tips.
6. Not Diversifying Your Trading Portfolio
When considering your options for stocks, make sure your portfolio is diverse. If you invest too heavily in one sector and there is a crash, this could leave your portfolio worthless and your bank account empty.
If you keep a stock trading journal, you’ll have an overview of what kinds of stocks are in your portfolio at all times, allowing you to widen the scope of your investments.
7. Paying Too Much in Commissions
You’ll be paying a stock broker commission for executing your trades, and this should be a fair and transparent transaction. Unfortunately, this is not always the case.
The huge amount of money in the industry has attracted brokers who will try to charge large fees for their own benefit. If you’re making hundreds of trades and paying these fees each time, you’ll quickly notice how much lower your profits are compared to your projected earnings.
Make sure you compare stock broker fees and get an understanding of what you’re paying for before you make a trade. You’ll then be able to work with a broker that offers top-class service at honest prices.
Now You Know Which Beginner Stock Trading Errors to Avoid
Avoiding these beginner stock trading errors can minimize your risk and help protect you from making costly trading decisions. Not having a coherent trading plan can quickly lead to disaster, while paying high commission fees can lower your profits. You should also be prepared to accept that some stocks will lose money, and stay within your comfort zone when choosing risky stocks.
If you’re successful, trading stocks can be a fabulous way to make a living.
Before you rush off to make money on the stock market, check out more of our helpful blog posts.