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Starting in the stock market can be intimidating and stressful, not only because of the risk of financial loss, but also complicated financial jargon. Trading the stock market can be difficult for beginners as new investors often don’t know where to begin, or which rules to follow. We have therefore put together a short checklist of Do’s and Don’ts to help you get started in the stock market.
Why stock market trading for beginners can be difficult
Stock market trading for beginners can be difficult due to various reasons. Firstly, the stock market is a complex and dynamic environment, requiring extensive knowledge of financial and economic concepts, analytical skills, and an ability to interpret complex data. As a result, understanding how the stock market works, the different types of stocks, and the strategies used to trade them can be overwhelming for newcomers.
Secondly, emotions play a significant role in stock market trading, and beginner traders are often more susceptible to making irrational decisions, reinforcing the importance of following a solid trading plan. Additionally, market volatility and unexpected events can cause sudden price movements that can be difficult for beginners to navigate without proper experience and knowledge.
Stock market trading for beginners: Key tips to follow
There are many trading mistakes that are common among both new and experienced traders. From starting small to not misusing leverage, there are various dos & don’ts to be aware of that can make trading the stock market a smoother process for beginners. Below we discuss the key tips you should follow for best results:
Start small
You wouldn’t dive into eight feet of water if you were just learning to swim, right? Similar to this, start small when investing in the stock market. Start with the smallest investment you can and progressively increase it as your expertise and confidence grow.
Start with your goals in mind
When trading the stock market, it’s important to start with clearly outlined goals, i.e. your reason for investing, which asset classes you want to invest in, and for which timeframe. It’s important to stay reasonable and adjust your expectations. Additionally, you need to be honest with yourself about how much risk you’re willing or can afford to take.
Don’t put all your eggs in one basket
This conventional wisdom also applies to investing. Technically speaking, this process of spreading your equity assets across industries and themes is known as diversification since it prevents your investing performance from being reliant on any particular stock or industry.
Take a long-term view
In the short term, and in times of high volatility, markets are prone to swings in either direction, which can be discouraging. It is important to always zoom out and consider the big picture.
Use a stop loss
A stop-loss is a risk management tool that helps traders limit their losses and request a broker instruct them to sell or buy a specific stock when the price reaches a certain level. The advantage of stopping losses is that it allows investors to make decisions without being influenced by emotions and to cut losses, when necessary, without thinking about future price fluctuations.
Don’t ignore your trading costs
Be mindful of trade expenses, even if you’re a long-term investor. There are several more expenditures in addition to brokerage fees that are included in your cost, such as taxes. However, there are several low-cost brokers on the market due to technological advancements in the investing space, which made the stock market more accessible to all levels of investors.
Don’t make emotional decisions
Emotional investing is the primary reason for poor trading performance. There are numerous physiological biases that can negatively impact your decision-making. Confirmation bias, anchoring bias, buyer’s remorse and anchoring bias are a few examples. Since most of these biases are ingrained in human nature, it may be challenging for individuals to recognize them. In any case, being aware of these prejudices can help you prevent them from doing major harm. A further benefit of these biases is that, like any habit, they can be overcome or changed with practice.
Don’t follow the herd
As a beginner in stock market trading, it can be tempting to follow the crowd and make decisions based on what others are doing. However, this approach can be risky as it can lead to herd mentality, where investors follow the trends without considering the underlying fundamentals of the stock. Therefore, it’s important to do your own research and analysis to make informed decisions rather than relying on the opinions of others.
Don’t dwell on your mistakes, but learn from them
The best way to learn from trading mistakes is by keeping a trading diary. A trading diary includes documenting which trades you placed, when, at which price, and when you sold them or when you got stopped out. This information will be useful when you sit down to review what you have done and how you can improve your future strategies.
Don’t misuse leverage
By using leverage, traders can borrow money to enter positions, which exceed one’s cash balance. This allows them to open large positions with a small amount of capital. Naturally, many traders are drawn to this concept because of the large potential profit. However, many overlook the fact that leverage is a double-edged sword, which also amplifies losing trades. Most new market participants are motivated by greed, which is why they frequently employ excessive amounts of leverage. When this is combined with a lack of experience, it commonly leads to irrational decisions based on emotions and therefore to high losses.
How ONE-SIGNAL can improve stock market trading for beginners
There are many more “Do’s and don’ts” in the stock market, but this list is a good starting point. ONE-SIGNAL offers a solution for individuals who are just starting in the world of the stock market. With ONE-SIGNAL, our subscribers receive one signal a day with a stop loss for risk management purposes.
Our approach makes stock market trading for beginners simple
The signal is delivered every day at the same time – traders then enter the trade at the NYSE opening bell, and close it at the NYSE closing bell, making it a systematic trading approach. For traders who prefer to trade less, we also offer a different subscription, whereby the trading signal is delivered a few minutes after the NYSE closing bell. If the signal remains unchanged, the position can be kept overnight.
However, more time-constraint or inexperienced individuals can also make use of our execution services, where everything, from signal generation to execution, is handled by ONE-SIGNAL.