Unlike a few decades back, investing in stock markets is no more complicated or restricted to few. Equity investment offers you an option to diversify your portfolio and earn higher returns in the long run. If you have no experience in stock markets, do not let this keep you away from investing in stocks. Digital platforms have made stock trading for beginners also convenient and hassle-free.
7 Common stock trading mistakes that beginners make
Online platforms offer investors valuable inputs and tips for investing and stock trading. However, as an investor, you need to be cautious and make decisions after careful deliberation. Here, we discuss 7 mistakes beginners should avoid when starting stock trading:
- Not having a financial plan.
Do not treat stock investments as a game of chance. Choose stocks with a clear plan and keep your financial goal in mind. The time frame you have in mind, your risk appetite, and your purpose for investments are some aspects you must focus on when researching stocks. These aspects can help you pick the right stock for investment and design an investment strategy suited for you.
- Investing more than your capacity
Do not invest more than your capacity in stocks. Invest only your spare funds or the money you have earmarked for investment. Using borrowed funds or taking a loan for investing in the stock market is a strict no-no.
- Not researching enough
A tip for stock trading for beginners is to pick stocks for investment after careful analysis. You should not pick a company based on recommendations given by your friends, your whims or market trends. Conduct thorough research based on ratios, balance sheets, past performance and other aspects. If you find this too cumbersome, you can use inputs available on various online platforms to help you pick stocks.
- Expecting miracles
Equity investments give higher returns than fixed income products like deposits or bonds in the long term. However, to earn good returns, you need to pick the stocks carefully and stay invested for the long run. Expecting miracles or your investments to double in the short term is an unreasonable goal.
- Not diversifying enough
While planning your investments, pick assets from different classes to have a diversified portfolio. Diversification reduces your risks by spreading your investments across various asset classes. Additionally, try not to concentrate only on one company or sector. Spread your investment across different sectors and companies.
WealthBasket from AsthaTrade helps you create a diversified portfolio based on extensive research.
6. Focusing on short-term trading
Stock trading is an approach that looks at investing for the short term and earning profits due to mispricing in the market. The stock investment approach takes a long-term view and focuses on wealth creation. If you are a beginner, you should avoid trading with a short-term view as it is riskier and requires very close tracking of the market.
7. Not capping losses
Beginners often make the mistake of holding on to stocks even when they are not doing well. Even if you have invested with a long-term view, and you see the stock performing badly continuously, you should be willing to cap your losses and sell the stock. The stop-loss feature can be helpful in such instances.
If you have not started already, it is an excellent time to begin your investment journey. Invest in stocks and watch your money grow by avoiding these mistakes. Make stock trading easier by opening a free Demat account with AsthaTrade, and benefit from their 20 years of experience and state-of-the-art technology.