Do's and Don'ts of Investing in Stock Market
Stock market offers different earning options to people irrespective of their age, qualifications, professional background or geographical location. There are multiple roles that a person can enjoy while associating with stock markets such as an intraday trader, positional trader, options trader, SEBI registered analyst, algorithmic trader, and many others. Almost 40 percent of the US population invest in stocks on a regular basis, but not more than 4 percent of Indians are availing it for income generation. The majority is not financially literate and falls prey to myths like trading/investment in stocks is a gamble, it is for affluent class, and it requires a lot of technological knowledge. However, one can easily earn good returns following the suggestions and precautions shared below.
Most people see stock market as a gamble without knowing the difference between calculated risks and naked risks. In fact, there is no single business without any associated risk. But the difference between a gambler and an investor is that the latter always takes calculated risks and tries to minimise and manage them for high success probabilities. So, if a person learns the skills first then enter into the stock markets s/he will always find things easier and safer to go.
Do’s of Stock Market Investing
Always have a goal to pursue: The first and foremost thing that people forget while planning their investments and trading decisions is that they don’t define a goal. It is just like shooting first and then deciding the aim which is of no use, we have to aim first then shoot so define a goal for our investment or trading and then act accordingly.
Work on money management skills: Investors don’t lose money because of their low accuracy ratios, most traders and investors lose money because they fail to understand the importance of proper money management skills. There should be clarity on aspects such as how much money you can risk per trade or investment, how to divide total portfolio in different market capitalizations, and how much money you need to have in a buffer to be ready to put it in short term correction opportunities.
Build risk management skills: A key factor in determining the ROI is your risk management skills. If you are having high exposure to risk but the rewards for those trades or investments are not in accordance with the risk that you are taking, then simply you are open to more downside than upside in your trades and investments. Similarly, you should need to define the proper “stop losses” and the “exit strategies” in your trades and investment plans. There are several techniques to manage the risk are trailing stop-loss, partial profit booking, position sizing and many more.
Always have a positive mindset: It is rightly said that “All wealth lies in the mind” so having the right mindset is very important to generate wealth in the stock market. If you have a mindset of just making money from the stock market then you will be involved only in the process of chasing money but if you have a mindset of an entrepreneur or a businessman who takes this as like not merely investing but buying and selling businesses with due diligence before undertaking any decision or then your ROI will get better over time as you will be having mindset of developing systems and consistency rather than chasing money and then money will be the by-product.
Learn to handlefear and greed:To conquer the fear and greed in the stock market, the most important things are to have a Stop-Loss and targets for all of your trades and investments. Stop-Loss helps you decide a better positionaccording to your risk management plans which in turn eliminate the fear factor from your trading. Your risk per trade is capped when you talk about the targets. It helps eliminate the greed factor by deciding in advance where to book your profits and exit your trade and start looking for new opportunities.
Be a lifelong learner: Every top trader or investor happens to be a lifelong learner as they add new skills and learn from their mistakes by keeping a journal of their decisions and experiences. So, always keep on updating your knowledge and skills about the stock market because just like any other technical skills, they also need to be groomed constantly. Of course, to keep yourself ahead and have an edge in the market, you must be updated with the latest trends and practices.
Don’ts of Stock Market Investing
Don’t keep all eggs in one basket: Never invest in one single company or sector, and always diversify your portfolio with conservative as well as innovative sectors. Do not put all the eggs in a single basket.Diversity is the key to better dividends and uniformity reduces profits in stock market trading. So, one should keep on diversifying the portfolio by investing in varied industries and companies of reputation. It doesn’t mean that always invest in big companies. If a new or relatively small company is promoting unique concepts and services and a team of qualified directors is managing the businesses, then it can also ensure better returns. Besides, a timely review of the portfolio can also help find out better investment options.
Never empty your hands:Do not ever invest all of your money in any investment opportunity. Always have some buffer money ready with you to accumulate more equities in scenarios of corrections (crashes) of more than 25 %.
Don’t listen to the noise: Following the majority, or herd mentality may block your chances of making good returns and sometimes even ruin your investments. Instead, think about the suggestions of the industry experts, follow your senses, experience, and a dash of gut feelings before jumping to a conclusion.
Never start with a blank mind:Every person must first understand the basics of the market and segments of the market like equities, commodities, currencies, derivatives and then he/she must start learning technical and fundamental analysis for markets.
Don’t procrastinate:Experts often claim that if you want to see the magic of the eighth wonder of the world “The power of compounding” then you should start it as early as possible. They believe that the size of the investment is not the only factor in the creation of your wealth but the consistency and the time you give to your money pay off with surprise returns. That’s why investors create wealth in the longer term, not in a day or week.
Most people see stock market as a gamble without knowing the difference between calculated risks and naked risks. In fact, there is no single business without any associated risk. But the difference between a gambler and an investor is that the latter always takes calculated risks and tries to minimise and manage them for high success probabilities. So, if a person learns the skills first then enter into the stock markets s/he will always find things easier and safer to go.
Do’s of Stock Market Investing
Always have a goal to pursue: The first and foremost thing that people forget while planning their investments and trading decisions is that they don’t define a goal. It is just like shooting first and then deciding the aim which is of no use, we have to aim first then shoot so define a goal for our investment or trading and then act accordingly.
Work on money management skills: Investors don’t lose money because of their low accuracy ratios, most traders and investors lose money because they fail to understand the importance of proper money management skills. There should be clarity on aspects such as how much money you can risk per trade or investment, how to divide total portfolio in different market capitalizations, and how much money you need to have in a buffer to be ready to put it in short term correction opportunities.
Build risk management skills: A key factor in determining the ROI is your risk management skills. If you are having high exposure to risk but the rewards for those trades or investments are not in accordance with the risk that you are taking, then simply you are open to more downside than upside in your trades and investments. Similarly, you should need to define the proper “stop losses” and the “exit strategies” in your trades and investment plans. There are several techniques to manage the risk are trailing stop-loss, partial profit booking, position sizing and many more.
Always have a positive mindset: It is rightly said that “All wealth lies in the mind” so having the right mindset is very important to generate wealth in the stock market. If you have a mindset of just making money from the stock market then you will be involved only in the process of chasing money but if you have a mindset of an entrepreneur or a businessman who takes this as like not merely investing but buying and selling businesses with due diligence before undertaking any decision or then your ROI will get better over time as you will be having mindset of developing systems and consistency rather than chasing money and then money will be the by-product.
Learn to handlefear and greed:To conquer the fear and greed in the stock market, the most important things are to have a Stop-Loss and targets for all of your trades and investments. Stop-Loss helps you decide a better positionaccording to your risk management plans which in turn eliminate the fear factor from your trading. Your risk per trade is capped when you talk about the targets. It helps eliminate the greed factor by deciding in advance where to book your profits and exit your trade and start looking for new opportunities.
Be a lifelong learner: Every top trader or investor happens to be a lifelong learner as they add new skills and learn from their mistakes by keeping a journal of their decisions and experiences. So, always keep on updating your knowledge and skills about the stock market because just like any other technical skills, they also need to be groomed constantly. Of course, to keep yourself ahead and have an edge in the market, you must be updated with the latest trends and practices.
Don’ts of Stock Market Investing
Don’t keep all eggs in one basket: Never invest in one single company or sector, and always diversify your portfolio with conservative as well as innovative sectors. Do not put all the eggs in a single basket.Diversity is the key to better dividends and uniformity reduces profits in stock market trading. So, one should keep on diversifying the portfolio by investing in varied industries and companies of reputation. It doesn’t mean that always invest in big companies. If a new or relatively small company is promoting unique concepts and services and a team of qualified directors is managing the businesses, then it can also ensure better returns. Besides, a timely review of the portfolio can also help find out better investment options.
Never empty your hands:Do not ever invest all of your money in any investment opportunity. Always have some buffer money ready with you to accumulate more equities in scenarios of corrections (crashes) of more than 25 %.
Don’t listen to the noise: Following the majority, or herd mentality may block your chances of making good returns and sometimes even ruin your investments. Instead, think about the suggestions of the industry experts, follow your senses, experience, and a dash of gut feelings before jumping to a conclusion.
Never start with a blank mind:Every person must first understand the basics of the market and segments of the market like equities, commodities, currencies, derivatives and then he/she must start learning technical and fundamental analysis for markets.
Don’t procrastinate:Experts often claim that if you want to see the magic of the eighth wonder of the world “The power of compounding” then you should start it as early as possible. They believe that the size of the investment is not the only factor in the creation of your wealth but the consistency and the time you give to your money pay off with surprise returns. That’s why investors create wealth in the longer term, not in a day or week.
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