Are you new to the world of Trading? Make sure to avoid these common mistakes made by beginner traders, and build a successful portfolio that is devoid of these blunders.
Unlike other mistakes in life, that give you experience, investing mistakes cost you to lose your hard-earned money. This is why it’s essential to learn from the mistakes of others.
Here, in this article, you can find a list of the frequent mistakes made by new investors (and even seasoned pros). By being aware of the costly mistakes made by others, you can stay clear of them.
Mistake #1: Diversify and Not Di-Worse-ify
As a beginner investor in the stock markets, you would have probably come across this advice from others – “the key to successful stock market investments is diversification.” Most investors for the sole purpose of adding diversification to their portfolio end up purchasing stocks with similar risk profiles. The result – you are left with an investment performance that averages poorly.
When diversifying, you shouldn’t just look for stocks from across industries. But, add stocks with varying risk profiles.
Mistake #2: Not Having a Trading Plan
Experienced traders always have a well-defined plan. They are aware of their entry and exit points, the amount of capital they want to invest and the maximum loss they can afford. Beginner traders often enter the stock market without a well-defined plan. Lack of a plan leads to random decisions made without any strategy.
Make sure that you know what you want to achieve from your investments, create a plan and stick to it.
Mistake #4: Holding on to Loss Making Stocks for Too Long
Very often, investors hold on to loss-making stocks hoping that the share will bounce back and recover its original price. Experts call this a “cognitive error.” By failing to accept that the stock is a loss, you are incurring losses in two ways. One – you avoid selling it for a margin, thereby letting it drop in value until it becomes worthless. Two – the money you make from selling it could have been used in other better investments.
So, don’t wait until you break even. If you find that a particular stock is performing too bad, then it’s better to make a quick sale and cut your losses.
Mistake #5: Letting Emotions Control your Investments
This is a cardinal sin of investments. It’s true that fear and greed drive the stock market. Don’t make a hasty decision, just because you are afraid of losing out, or looking to make quick returns. Always focus on the bigger picture.
Stock markets may fluctuate wildly in a short time frame. But, over the long run, they offer stable returns. So, before you make any trade decision, make sure to stay calm and take a logical decision, and don’t let your emotions get the better of you.
Mistake #3: Trading on Multiple Markets
Very often, beginner traders flit from one market to another. Tracking multiple markets is a difficult task, and can be hugely distracting, especially when you are new to the game. Also, by switching exchanges, you fail to gain valuable insights that you learn when monitoring the performance of a single market regularly.
Make sure to choose a market – the NSE or BSE and stick to it, till you gain sufficient experience.
Final Thoughts – Mistakes are Part and Parcel of Investing
However, by knowing what they are and the best ways to avoid them is essential to succeed as an investor. Develop an investing plan and stick to it. If you must take some high risks, don’t use your entire capital. Instead, set aside some fun money for you to take wild risks. Make sure to avoid the mistakes listed here, and you can easily build a portfolio that offers you impressive returns over the long term.