Once you’ve managed to establish good financial habits, you’re eventually going to want to start investing your money in order to grow it. Despite the adverse effects of the pandemic, there was a sudden spike in interest for stock trading in 2020. The reason behind this spike is that when the markets began to crash, there was a significant drop in stock values. This made stock trading much more viable, since investors were able to buy stocks at steep discounts, which would then be sold later for lots of profit once the economy recovers.
However, stock trading is not a guarantee that you’re going to earn a profit. People need to understand that stocks are volatile and it’s just as easy to lose your investment capital as it is to gain a profit. Before you start putting down a lot of cash for your investments, here are some mistakes that you should avoid when trading stocks.
Neglecting to Monitor the Market
Remember that the market is still significantly volatile, even when there is a steady decline in unemployment rates, and your fortunes can change quickly. News events can heavily influence the market and cause significant market fluctuations. Monitoring the market also involves keeping up with current events and by implementing a stop-loss order on all short-term trades.
Staying up to date with the news also helps you avoid market manipulation attempts. It’s easy for criminal elements to make a particular stock look more profitable than it actually is. This tends to attract hopeful investors to buy more of that particular stock, which further drives up its value. Market manipulators will then sell all their shares of the stock for a huge profit, which will also decrease the stock’s value, thus leaving hopeful investors at a huge loss.
Trading Whenever There’s a Breakout
Breakouts happen when a stock price increases past a defined resistance level. It can be tempting for first-time traders to sell their stocks the moment they’ve hit break-even. This is a mistake as you’d be trading based on feelings, which is something you should never do as this can hurt your profits. It’s imperative that traders set realistic take-profit goals and to adhere to those goals.
An availability bias refers to the tendency of investors to be influenced by what is subjectively more relevant, recent, or memorable. This causes investors to make decisions based on personal market perceptions instead of facts which then causes them to pull their stocks at the wrong time. Always do your research. Never make financial decisions on a whim. You may even want to consider hiring an economist to conduct stock research to provide you with a more detailed picture of the market’s health.
While the tone of this article comes off as cautionary, we do encourage our readers to invest their money. Remember that stock trading is just one way to invest and that there are many other worthwhile investments you can do in 2021. If you do decide to delve into stock trading, always keep in mind that knowledge isn’t just power, it’s also profit.