Stock Market Trading Tips for Beginners in India for Intraday & Investment
While traders and investors use two different types of trading transactions, they often are guilty of making the same types of mistakes. Some mistakes are more harmful to the investor, and others cause more harm to the trader. Both would do well to remember these common blunders and try to avoid them.
Inadequate research, following a herd mentality, lump-sum investment and exiting the market after volatility are some of the stock mistakes you should avoid.
The stock market has the potential to deliver high returns on one’s investment. However, for it, it’s essential to adopt due diligence and avoid certain mistakes. It’s common for people to complain about markets when they lose money.
Investing in the stock market is more like a marathon and is not a ‘get quick rich’ scheme. So, investors should not expect to earn money overnight. Success in the stock market comes from careful planning and knowledge and the ability to stay out of emotion while making decisions. Greed is mostly responsible for losses one suffers in the financial world. Most investors put money in stocks without knowing the business. Proper knowledge of a business can help investors understand how earnings can grow with any changing business dynamics.
More often than not, it’s a result of their faults. In this article, I will talk about major stock market mistakes which beginners should avoid for maximum mileage.
Gain some understanding of the market
Before investing, gain some understanding of the market and its relationship with the economy. People lose money in the markets because of their simple jump to the market without understanding the economic and investment market cycles.
Remember that business and economic cycles keep on changing. As inflation creeps up, prices rise, and GDP growth slows. So, the stock market declines in value. The time to invest in the market is when the economy is in a boom cycle. A short-term fall in the market can be a perfect time to enter as the markets rise and fall due to domestic and global short-term events. Also, if you are already invested, don’t react and sell your stocks when there is short panic in the market. To avoid losing money during a market-wide drop, your best bet is to just sit tight and wait for your investments to rebound.
Investing is not a get-rich-quick scheme
People lose money in the markets because they think continuously follow day-trading strategies and outrageous claims of penny stocks. From 1997 through 2016, the average active stock market investor earned 3.98 per cent annually, while the S&P 500 index returned 10.16 per cent in returns. The reasons are simple: Investors practice frequent buying and selling in an attempt to make superior gains. To avoid losing money in the markets, stick with proven investment approaches for the long term instead of choosing “can’t miss” pitches and strategies. Though you might lose a bit in the short term, ultimately the slow-and-steady approach will win the financial race. You can get benefitted with research stock investment tips here.
Never buy a stock based on its past performance, buy on stock fundamentals
It is always good to know the past performance of a company’s stock performance, but it is risky to depend completely on it. A stock that gave certain returns the previous year, may not give similar returns in the current year. The returns will depend not only on the company’s movement but also on market conditions and the performance of the economy.
One should always compare the stock valuation with its peers or industry average before investing. Select quality stocks by looking at the history and the price-to-earnings (P/E) ratio which is one of the important factors among many others. The ratio indicates whether a stock is over-valued or under-valued. Comparing a set of stocks on the parameter of PE ratio gives investors a fair idea of how expensive or cheap a stock is on a relative basis.
Avoid investing in companies which have yet to strategize a way to earn revenue. A company which has had a strong earnings history does not mean the company will always do so, but it potentially will be in a financially healthier position than a company that has yet to earn revenue.
It is a cardinal mistake which you must avoid while investing in the stock market. Before venturing and even after that you need to know how the market behaves, the terms associated and most importantly stock fundamentals.
Armed with proper research and know-how will help you make an informed decision and avoid being rash. Make sure to conduct an in-depth analysis of the company, its management and operating procedures before taking a call.
Don’t let your emotions drive your investing
Some investors emotionally attached to specific stocks, ignoring their changing fundamentals. They remain often biased on their investment decision and are unable to exit at the right time or enter without any supporting fundamental of the business. It is always advisable to set apart your emotion and investment and take a decision only on underlying factors. Avoid pumped up stocks and do your research before buying.
Act on free advice
Today, there’s no dearth of free advice on stock market investing. It’s best to avoid these pieces of advice and acting on them. If you are confused or want suggestions, it’s preferable to opt for professional assistance from seasoned stockbrokers and licensed brokerage firms. You should always trade through SEBI regd investment advisory services and this happens to be the best advice for all those looking for on Google for stock market tips for the beginners which you must follow.
A stockbroker or a brokerage firm has in-depth experience about how markets behave and would guide you accordingly. They work in your best interest and it’s advisable to handhold them in your stock market investment journey.
Don’t be swayed by unfavourable events
An unfavourable event doesn't need to result in a negative impact on the stock market. It depends on the nature of the event. It is important to analyse the possible impact it could have on the economy overall and then come to a logical conclusion on the impact it can have on the stock market.
Gujarat earthquake, for instance. Everybody had speculated that the earthquake would devastate the country’s economy and make the stock market stumble because Gujarat has the largest number of investors. Interestingly, the market reacted differently by recovering all the losses later on. In this case, the event boosted the economy as reconstruction had to be taken up in a big way, giving a boost to the cement and construction industry.
Stock markets are volatile. Many internal and external factors contribute to this volatility. However, it’s important not to panic and exit investment following volatility. If you do so, it can impinge on your life goals. If you have invested in fundamentally sound stocks, there’s no reason for you to panic during market swings. Remain invested and you will sail through on most occasions.
Don’t hurry up in booking profits
It may be alluring to book profits early sometimes. But most investors who have made money in the stock market have worked on ‘buy’ and ‘hold’ strategy. For securing profits, you should continue in stages, thereby keeping some scope to take advantage of the rest of the movie. The ideal mix should include small losses, small profits and big profits. Selling a quality stock on the smallest of negative news is one of the worst decisions an investor can take. Negative news can increase the volatility in a particular stock in the short run. However, one should not sell a stock in panic.
Treat every trade as just another trade
Every trade is just another trade and only normal profits should be expected every time. Supernormal profits do occur, perhaps rarely, but should not be expected. Remember, you should increase your risk only when your equity grows enough to service that risk.
Beware of the herd
In investing, herd mentality is one of the worst. Herding in investing occurs when you follow the group, without evaluating current information and underlying stocks. In the late 1990s venture, capitalists and individual investors were pouring money into internet dot com companies, driving their values sky-high. Most of these companies lacked fundamentals and sustainability. Investors, afraid of missing out, continued to follow the herd with their investment and ended lost heavily. To avoid losing money in the markets, therefore, don’t follow the crowd and don’t buy into overvalued assets. Instead, create a sensible investment plan, and follow it. If a majority of investors are investing in a particular stock, it’s not necessary that you too have to do the same. Your financial goals and risk appetite must dictate your investments. Get into the depth of things and invest only if you are satisfied that the particular investment aligns with your objectives.
Diversify, but don’t overdo it
Never put all your eggs in one basket; invest in a variety of stocks and asset classes. Avoid putting all your money in a single stock because if it performs, you win; if not, your investment is gone. Diversification helps investors in reducing the volatility and protect the portfolio with sudden changes in the market environment. It will help you under such circumstances where even if 1 or 2 sectors underperform, then this loss might be offset by gains in other sectors. Diversification of investment is a must to mitigate risk. However, do not over-diversify as having too many stocks in a portfolio may not create significant value for you. There are chances of depriving yourself of the gains from profitable investments.
No Trading Plan
Experienced traders get into a trade with a well-defined plan. They know their exact entry and exit points, the amount of capital to invest in the trade and the maximum loss they are willing to take.
Beginner traders may not have a trading plan in place before they commence trading. Even if they have a plan, they may be more prone to stray from the defined plan than would seasoned traders. Novice traders may reverse course altogether. For example, going short after initially buying securities because the share price is declining—only to end up getting whipsawed.
Letting Losses Grow
One of the defining characteristics of successful investors and traders is their ability to take a small loss quickly if a trade is not working out and move on to the next trade idea. Unsuccessful traders, on the other hand, can become paralyzed if a trade goes against them. Rather than taking quick action to cap a loss, they may hold on to a losing position in the hope that the trade will eventually work out. A losing trade can tie up trading capital for a long time and may result in mounting losses and severe depletion of capital. They even tend to convert their intraday loss making trades into delivery tip and this is one mistake which you must avoid. Always stick to your term perspective of the investment and if you really want to make cool money in intraday trading options, then none can beat our Bank Nifty Option Tips where we guide you to get the best profit in intraday options trading.
Investing a lump sum
While there’s nothing wrong fundamentally in investing a lump sum, it’s ideal to adopt a wait and watch approach before committing. To simply put, instead of investing a lump sum, it’s prudent to start small.
When you start small loses, if suffered, won’t hurt you much. On the other hand, if you commit to a large sum of money, the damages would be more in case of loses incurred.
Evaluate your portfolio regularly
Evaluate your portfolio regularly and adjust your holdings accordingly to your set exit points. The stocks which are not moving anywhere should be sold so that you can free up the cash for other opportunities.
Keeping all the above points in mind will help you avoid losses in the market. However, one last important thing that may help you remain a stress-free investor is to ‘only invest what you can afford ‘.
Never invest money you cannot afford to lose. Investment is done to generate even more money, but do not invest all your emergency money in the stock market. Investing emergency money will increase the likelihood that you will be emotionally attached when making decisions as you cannot live without the fund you are trading with. This may put you in a risky position and may cause you to make irrational decisions.
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