5 Risks To Avoid As A First-Time Stock Trader

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So you’ve finally decided to take the plunge and start your career in trading. First of all, I want to offer my congratulations. That first step is always a big one and it shows that you have the courage to take on the risks that trading stocks present.

What I want to do here is help you to avoid some of the common pitfalls that first-time traders tend to fall foul of. Avoid these mistakes and the odds are you will find success in your trading.

Not Doing The Research

The cardinal sin of any trade is not understanding everything about it before you invest in the stock. You need to have a strong knowledge of the industry you’re trading in, the company you are purchasing stock in, and the people who are running it. Don’t allow yourself to be pressured into buying stocks that you haven’t fully researched and always remember that there are plenty of opportunities out there for you. You don’t have to snatch at the first one just because it’s there.

Playing To Fads

The best way to earn a consistent income from trading stocks is to play to the long term. Fads will come and go, and they can be decent money earners if you are wise to them, but consistent and smart trading is almost always going to be the best way forward. You should look to create a plan that involves investing in low-risk stocks that will offer decent returns. This will give you the flexibility to take a couple of risks every now and again, as it means you have a base to fall back on if the fad doesn’t pay off. The key is to not make the short term trades your main plan.

Going All In

All traders know the feeling. You’ve spotted an opportunity and the research checks out. Investing heavily into the company you have in mind has potential to reap massive rewards, which increases the temptation of going all in. However, you need to temper these thoughts with the knowledge that there are no sure things when it comes to trading stocks. Going all in makes you vulnerable, as you have nothing to fall back on it everything goes wrong. Diversify to keep things stable. If you do take the risk, understand that there is potential for you to lose everything.

Investing Too Much

If you are looking to start investing and have yet to draw up a budget that separates the money you are prepared to lose from the money you need, I want you to stop right now and get on that. You should always understand what you have to spend before you enter the stock market. If you don’t, you may end up investing money you really can’t afford to lose, which can cause all sorts of problems when it comes to bill payments and other essential costs of living. Make sure investing makes sense to you financially before you try it.

Starting Big

There is nothing wrong with starting small and only trading a few stocks when you are starting out. In fact, it is recommended because it offers you the chance to learn more about how the markets work, as well as allowing you to see first-hand the effects that volatility can have on your trades. Starting big may reap rewards if you are really lucky, but it could also lead to you completely wiping out your funds within the first few weeks of trading. Develop your knowledge and confidence over time, as this will make you more able to define risks.