While practice makes perfect, mistakes are an essential part of improving your trading strategies.
That said, it is also crucial to understand that some mistakes in investing can be avoided if you can recognise them in time.
Here is a list of 10 wrong decisions traders might be making now that may lead down a road to financial ruin.
Falling in love with a company
It is natural to become complacent when the company you invested in is doing well.
However, it is essential to remember that you have bought this stock only to make money, and there is no loyalty clause attached.
Hence, if the fundamental principles of the company that made you buy their shares in the first place change, you would be wiser to sell the stock than to hold on to it for sentimentality.
Not drawing a financial roadmap
The first step to unsuccessful investing is investing without thoroughly understanding your financial situation and risk appetite.
Every investment comes with a risk, and there is no guarantee that it will always turn profits. Without planning and research, one can lose all their savings and go bankrupt.
Therefore, it is essential to take guidance from financial advisors, especially if you are investing for the first time.
Forgetting market timing
It is essential to follow the market and your specific investments closely to buy the shares when prices are low and sell them when high.
Failing to touch base with markets or your investments regularly can lead to gauging the markets wrongly and losing your money.
Neglecting a trading plan
Beginner traders often make the mistake of not following a plan in trading. They don’t plan their entry and exit trading strategies.
Experienced traders, on the other hand, enter the domain of investments with well-defined strategies. They know how much capital to invest and the precise quantum of risk they are willing to take.
Once you make a plan, it also is critical to stick to it while investing and not get distracted by random and stray fluctuations in the prices of stocks.
Putting all eggs in one basket
Investing all your money into one asset category is a recipe for disaster. It is intelligent to stick to the principle of diversification.
By investing in more than one asset category, you reduce risk and counteract your losses in one category with better investment returns in another.
Thus, a diversified portfolio ensures your overall investment returns balance themselves out and remain stable.
Not recognising growth sectors
It is essential to keep yourself updated with trends of growing sectors and those in decline.
Having no proper insights into which sectors are doing well and which aren’t can lead to unsuitable investments, causing your fingers to burn.
Hence, keep track of growing sectors in the economy and make the right investments for the best returns on your investment.
Turning impatient
Never be in a hurry while building your portfolio. Go slow and steady to aim for growth that will yield higher returns in the long run.
Understand the limitations of your portfolio. Hence, keep your expectations realistic for portfolio growth and returns.
Losing sight of risk tolerance
Do not lose sight of your risk tolerance capacity. As a new investor, you may not be able to cope with the ups and downs of the stock market and the associated speculative trading.
In such instances, it is recommended to invest in blue-chip stocks of reputable companies (marginal risk) than in volatile stocks (high risk).
Allowing emotions to make decisions
Never let fear or greed control your decisions. Emotions can make you lose sight of the big picture.
Therefore, get your long term goals clear and don’t worry over deviations that may occur in your stocks over a shorter time frame.
Not safeguarding against fraud
Fraudsters can use a highly publicised news item to lure potential investors, making their prospects sound legitimate.
Always check with an unbiased source before investing. Always do sufficient research about the company, and take advice from trusted friends before investing.
Conclusion – Bottom-line
You can make the stock market work for you by avoiding these poor decisions while investing.
Stay smart and patient, and watch your money grow with time!