You’ve decided to start your stock market journey. You’re ready to take bold actions and start investing.
There’s this nagging feeling if you’re going to come out of this alive!
Don’t worry, this is completely normal. Getting out of your comfort zone is scary. But you still deserve a pat on the back for finding the courage to invest. Not everyone has the guts to do so.
Yes, there are risks.
We cannot completely remove investment risks but there are ways to minimize them.
So what do you need to know to successfully invest in the stock market?
Stock market consists of professionals. You have to compete with them directly or indirectly. Take time to read and do your research. Invest in your knowledge as you invest your capital.
Familiarize yourself with the basics like different financial ratios, methods for stock selections, trends, order types, among others. Study harder until you have decided what strategy works best. Join forums and talk to people.
Don’t forget to read the news. Stay updated on current events. Stocks are greatly affected by economic conditions. Any positive or negative news could have a great impact on the stock market.
Know your stocks
You’ll always encounter people who hype stocks. They will encourage you to invest in a certain stock and will make you believe the stock is on uptrend when it is actually the opposite. Don’t believe in gossips. When you invest in a particular stock, you have to know the reason. Make sure you did your research and analysis before putting your money on it. Understand the business of the company and its potential. Sometimes, you get lucky but luck doesn’t work all the time. You will always be responsible for the consequences of your decisions.
Are you going to gamble your money into a game of pure luck?
Quick Tip: If you want less risk, invest in blue-chip stocks. These stocks are exposed to fewer fluctuations compared to penny stocks.
Control your emotions
You checked your portfolio and discovered your losses. Do not panic. These are just paper losses after all. If you are a long-term investor, this is not a problem, you can wait until stock prices recover.
When you’re into stock trading, greed and fear might hit you. When the stock price is getting higher, you keep on wanting more. Quick wealth entices you to speculate, you buy more stocks impulsively without understanding the risks. This usually happens when we believe and react easily to hot tips from our network without putting it on our watchlist first.
At the same time, when the price is going deeper, you get too scared. You then sell your position at the rock bottom.
Manage your emotions because this will generally affect your investment decisions.
To save you from depression during the bear season, it’s important you invest using your surplus funds. Trade with the money you can afford to lose. Your investment can give you huge gains but can be huge losses too. It is alright to start small and grow through time.
Develop a strategy and stick to it
To manage your emotions, you have to develop a trading plan. There is no perfect strategy because if there’s one, all of us might be rich right now.
Have a concrete list of rules from stock picking, ordering, to finally trading and then management. When will I make entry? How about my timing? Should I keep my position since the price is likely to get higher? Or should I sell now before the price falls?
Set a rule when to cut loss, or when to take profits.
For instance, if my stock reaches my target goal of 20% earnings, then sell and realize your profit. Same with losses, how much do you afford to lose? Be specific and cut your loss now or it might get worse. Just invest it in other uptrend stocks to make up for your losses.
Make sure you have a clear exit strategy when trading. If you don’t stick to your rules, then you’re just purely gambling.
Diversify your portfolio
As the investing cliche says, “Never put all your eggs in one basket”. Going all in is very risky. Diversification allows you to recover from the loss of your total investment. You might consider allocating your funds to a mixture of blue chips and penny stocks.
You’ll always feel bad when you see negative figures in your portfolio but just keep at it. As long as you know what you’re doing, you’ll start to see profits through your strategy, patience, and determination. Then you’ll know, it’s all worth it.
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