Recently, it is clear for everyone to see that huge losses have been inflicted upon the stock market. This has resulted in an increase in a number of people opening brokerage accounts, with the aim of taking advantage of stocks whilst they are low. However this could lead to these people making Critical novice errors.
Mistakes Stock Market Novices Make
If you are a novice or just want to be aware of the 10 Critical errors beginners make then read on. . .
As they are new to the stock market, they are unlikely to have developed, let alone tested, any successful strategies. If they are planning to buy multiple stocks frequently, this could end up in them losing a lot of money quickly.
Stock Market Psychology
Meaning that they are unaware of the senseless actions that a losing trades can make traders do! Remember ‘traders that lose cut their winnings short and let their losses run!’ this is an easy psychological state to get into after having a few losing trades.
Meaning that investor could buy a cheap share and not realise that liquidity is low, which could result in them suffering from sharp price movements and not being able to get rid of the stock when they want to!
Research Financial Information
Novice investors do not research a companies key financial information, they often just go on big company names they know – this means they do not know how much a company is forecasted to grow, how much debt its in etc.
This stuff is worth knowing if you want to make a trade on which way the share price is going to go! Financial Statements are very crucial while doing Fundamental analysis of a company. Financial Statements are available in company’s Annual report.
Lack of Stop Loss awareness
This means that when they enter a trade, and further losses are inflicted to the stock, it is unlikely they will be able to cut these losses short. If you are a beginner, find out what stop losses are and use them!
Execute Trade Incorrectly
Its easy for beginner traders to accidentally execute trades incorrectly – because they are new to ordering a stock, it is easy to mistype information/numbers or click on the wrong box (yes I have shorted a trade when meaning to go long before!). Making a few practice trades first is highly recommended.
Limit and Market Orders
Not knowing the difference between limit & market orders – in volatile times like the last few weeks, depending on how much capital is invested, a the difference between a limit and market order could mean you start the trade with a significant loss.
When to Exit a Trade
Many people who invest for the first time do not know when to exit a trade – and more importantly do not know ho much money they want to make from a trade. This could result in the investor getting impatient and exiting a trade at completely the wrong time.
Rely on Stock Market Tips
New traders on the stock market often follow tips from their mates or tips from people who they think have stock market knowledge – this can so easily lead to disaster, do you own research or seek professional advice! How many times have you taken a tip on the horses and lost?
New traders will often sign up to any brokerage account – this means they will not have taken into account if a broker charges inactivity fees for not trading, not ideal if their plan is to buy and hold a small number of stock for months and months.
Some investor are not even aware about difference between a Full service broker or Discount broker. If you want to learn more about Types of brokers than check this.
Anything I Missed?
So this is the list of Critical Mistakes Stock Market Novices Make.
There you go guys, take all these points into account when entering the stock market.
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