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Gerald M Loeb has rightly said, “Profits can be made safely only when the opportunity is available and not just because they happen to be desired or needed.”

This quote aptly depicts the dynamical nature of the share market, where stocks are on sale all the time, but not every second is the right moment to seal the deal. A trader should be vigilant enough to avoid common errors while investing the hard-earned money in the share market.

Here is an easy-to-understand guide that chalks out four common mistakes which must be avoided while trading.

1.   Incomplete research

It’s a common scenario where few colleagues discuss the best stock app Australia and how they have maintained their positions in the share market; those conversations influence your mindset and sometimes tempt you enough to walk on the same path.

But beware of the bogus behavioral patterns in the stock market. The unanticipated recommendations about the stock pricing are the determinants of the value tapering tactic. These should not be a part of the final decision of buying a stock because every trader has a specific strategy as per the assets in his account and portfolio infrastructure.

Research about the company whose stocks are under your consideration. Understand the company’s goals, functioning mechanism, its fundamentals, and durability to economic fluctuations to get a security assurance for your invested money.

2.   Simulating some successful trader

Idealism is real. But its implication in real life has its set of repercussions. It's completely fine to look up to experts and stalwarts for tips and tricks but copying their portfolio in the hope to achieve the same amount of success is not a good idea.

People stan Warren Buffett for his startling history in the share market. His experience may speak volumes, but the stock he bought during his active days may not mirror the same outcome in the current times due to technological advancements and changed mindsets.

The variability in financial objectives that differ with respective portfolios is another reason. The risk involved in the investment takes its roots from the assets, which are not equal for anyone.

Even if the portfolios match, it is not a smart move to trade in the same fashion because this is not an exclusive portfolio; it’s a general piece of information, trying to lead in you a rat race where prices are twisted to create false hype.

3.   Trying to time the market

Although “buy and hold” is an ideal strategy recommended by stock experts, market timing is yet another end of this spectrum. It is the constant in and out movement of financial investment from the market or switching asset classes( equity, stock, cash equivalents, etc.)

This is a tedious process that requires constant scrutiny and attention to minuscule changes in the trade chart to find an appropriate entry point. Frequent entry-exit points cause repetitive transaction and commission charges along with elevated income tax as per financial gains of the fiscal year. Therefore, market timing is not a good plan to follow in the beginning period.

4.   Not-so diverse portfolio

Portfolio diversification is an important part of risk management strategy. It assures you a shield when some of your stock hits the bottom line. If you invest in only one particular industry, all its sub-segments are bound to be affected as a result of the domino effect.

Therefore invest in diverse sectors with different sets of audiences and goals. ETFs, S&P 500 is a good choice, to begin with. Also, push your boundaries beyond geographical dimensions with foreign stocks so that a national economic crash doesn’t shatter your stock investments in toto.

 

 


Four Mistakes To Avoid While Stock Trading
Digital Mag

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