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Top 10 Trading Mistakes to Avoid in Stock Market

Updated on September 22, 2021 , 83 views

Investing in the stock market is often considered as a ‘glamourous’ scenario. You invest, keep an eye on the daily news analysis and boom — you are a rich investor! Well, in reality, that is not often the case. You invest but gain returns over a long period of time. Not every investment provides the expected returns and sometimes, a loss may come your way. However, investors do enjoy the process of continuously researching the best stocks and high-returns from the market, is the best kind of return.

Trading Mistakes to Avoid

However, to be stable and trading well, there are certain common trading mistakes to avoid in the market. This article will inform you about that.

Importance of Trading

Well, if you didn’t know, the truth is that trading is an important activity in the stock market and the economic balance of the country. As an individual trader, you play a part in the nation’s financial atmosphere by partaking in interpreting decision points and even shooing market inefficiency away.

Top Trading Mistakes to Avoid

1. Lack of Planning and Research

Planning is probably the most important step to incorporate when it comes to investing and trading. Having a well-designed trading plan will also help you come up with ideas for trade. It is like a road map for your trading day or week. If you Fail to make a plan for researching or trading, you will miss on trades or invest in the wrong places.

Abraham Lincoln once said that give me six hours to chop down a tree and I will spend the first four sharpening the axe. This is true even when it comes to trading because planning is your way of sharpening the axe. One of the major advantages of planning before trading is that you will be free of stress. This further means that there will be lesser emotional issues to confront.

When you create a trading plan, the chances to succeed is higher. One of the best elements to add to your trading plan is to set price alerts. For this, identify key price levels and place the price alerts around the areas of the price that could instigate a trade. You can then compare your trading plan with what you need to do and whether the price set up is offering trade or not. It also helps you stay flexible and make space to be available for changes.

Along with lack of planning, lack of research is another mistake to avoid when it comes to trading. With proper research, you will be able to understand how much risk you can take. You will also be able to gauge which company is profitable. Researching also helps in forecasting. You can understand when and where to invest and stay away from emotional decisions.

2. Setting High Expectations

Never enter the market with high expectations in mind. Growing wealth in the market takes time and lust for quick gains can often lead to a loss. Always remember to never put money into a stock that you might need within the next five years. This is because the market conditions are subject to changes often and the investment can take years to recover. Therefore, have reasonable expectations and proper research can help you get just that.

3. Choosing Short-term over Long-term investments

Short-term investments are probably one of the biggest Intraday trading mistakes to commit. Whereas, long-term investments are probably the best kind of investment for both beginners and experts in the market. Short-term investment can often lead you to panic and take quick decisions whereas long-term investment will help you steer clear of such situations.

Even historically speaking, if you align your portfolio for long-term investment, you are more likely to earn more Income. If high-quality is your focus, long-term is the most suitable time period for the investment. One of the major advantages of long-term investment is that you can save much on Taxes. If you are trading actively, the long-term Capital gains taxes are great depending on how much you earn. Holding stocks for longer than one year will help you save on money and tax time.

Short-term investment can attract much more taxes and you are prone to commit a number of mistakes based on the falling and rising prices of stocks.

4. Making Gut Decisions

While making decisions on your gut feeling can be advantageous at times, it is always one of the beginner’s trading mistakes. Experts in the market can take gut decisions but not often. Gut feelings are often mixed with emotions and personal opinions which may not always be true. It could lead to losses if often made the choice.

5. Buying Stocks with Less Value

Stocks with lesser value stocks are equity shares with a market value that is lesser than their real value. It does not mean that they are cheap. This value could be due to market slowdown or other socio-economic or industry-specific factors affecting the stock.

It is advisable that beginners and intermediates in the trading market stay away from buying stocks of less as much as possible since it could be time-consuming. Another reason is the risk of flawed analysis where you could make the wrong decision because of lack of experience and understanding of the changing market scenario. Moreover, investing in stocks with less value may not be your cup of tea until you gain the required experience.

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6. Trading too Much

One of the biggest risks of being an active trader is not knowing when to stop. This can lead you to trade too much which can prove fatal to your Bank balance. Trading too much can cause Capital Loss and you could commit the mistake of making decisions in the lust for too much profit.

It could also lead you to disrupt your Financial plan and cause you to manage your money poorly. When the market is facing a bad phase, you may run the risk of investing or buying the wrong stocks or even retaining the wrong ones. Day trading for beginners is always recommended to stay away from the risk of overtrading.

You may also make a lot of emotional decisions since trading too much can cause mental issues like anger, panic and frustration.

7. Diversifying too Fast

While diversification is always a great thing to do since it lowers portfolio risk, diversifying too soon can pose as an issue. Opting for this can cause to make quick decisions which may often be without research and emotional. This could further lead you to invest in stocks of low quality. You may also end up investing in stocks that are extremely complicated. You will face returns below average and run the market risk of losing on the best possible investments.

8. Trading based Solely on News

One of the biggest mistakes traders make is depending solely on news for trading decisions. This can be a disaster to your portfolio and your credibility since you will be making decisions based on what you hear. Such investment and trading decisions involve lack of planning, research, emotional decisions and following the majority. Avoid this to make the right investment and trading decisions.

9. Panicking and Buying

Another term for this scenario is something you’ve read throughout the article, ‘Emotional Decisions’. As an investor, emotional elements often get in the way of investing and this could lead you to make irrational and baseless choices.

Your emotions could lead you to be happy and cause you to buy hot cakes from the market which could prove to be a total loss. Avoid emotional trading mistakes to avoid loss.

10. Avoid Herd Behaviour

Herd behaviour is a bias that occurs when investors follow the decisions and actions of other investors. Investors are influenced by emotions rather than personal research. When you make decisions to invest in a stock just because another investor or a majority of investors are making the choice, you are indulging in herd behaviour. This can be the cause of some of the biggest losses you face. Never make an investment decision without personal analysis of the same.

Conclusion

Avoid making trading mistakes and gain huge returns from the market. Be patient and always research before investing or purchasing a stock.

Disclaimer:
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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