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How could beginners make money in stock market?

2018-01-29 10:31:29
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There are things to overcome when it comes to the stock market, especially if you are new to the financial market.


It is important that no matter what, you never allow yourself to be intimidated by the stock market or this may lead to lowering your profit potential. Learning the stock market and how to make money in the stock market can be a lot easier when you first take the time o focus and learn how the system works.


Gauge market’s mood, and then move quickly


The average investor may lack the analytical tools or understanding of finance to correctly predict market direction, but luckily, analysts and stockbrokers can do that for you. The key is to resist the temptation to react to a single news story about the market or an individual stock. Wait until multiple observations are saying the same thing since that will set the market’s mood, and then move quickly to buy or sell before other investors catch on.


The exception to this is if you’re buying stock to hold over the long term, in which case you may be better off ignoring one-off developments or analyst comments and betting instead on the company’s fundamentals, such as long-term strategy, market share, expansion potential, dividend policy, price-to-earnings multiple etc


Anticipate company developments


You don’t have to be a financial expert to stay on top of company news and see what may be coming on the horizon, such as an announcement about a new product or big expansion, serious competition from other players, or a stock buyback. 


If you time it right and buy the stock before the news becomes official, you may be able to trade on a temporary fluctuation driven by investors who haven’t been paying attention and haven’t baked the news into their own price targets yet.


Use limit feature to manage risk


The limit feature on electronic trading platforms enables investors to set the maximum price they’re willing to pay for a stock. This can be very useful for managing risk in a volatile market. When stocks go down, it’s tempting to rush in and buy them before they can go back up, but the reality is that no one knows what the floor is. If you buy too soon, you could actually wind up taking a loss if the market goes down a lot more, or at the very least decrease your profits from the trade.


Avoid herd mentality


The typical buyer’s decision is usually heavily influenced by the actions of his acquaintances, neighbours or relatives. Thus, if everybody around is investing in a particular stock, the tendency for potential investors is to do the same. But this strategy is bound to backfire in the long run.


No need to say that you should always avoid having the herd mentality if you don’t want to lose your hard-earned money in stock markets. The world’s greatest investor Warren Buffett was surely not wrong when he said, “Be fearful when others are greedy, and be greedy when others 
are fearful!”

 

Don’t try to time the market


One thing that even Warren Buffett doesn’t do is to try to time the stock market, although he does have a very strong view on the price levels appropriate to individual shares. A majority of investors, however, do just the opposite, something that financial planners have always been warning them to avoid, and thus lose their hard-earned money in the process.


So, you should never try to time the market. In fact, nobody has ever done this successfully and consistently over multiple business or stock market cycles. Catching the tops and bottoms is a myth. It is so till today and will remain so in the future. In fact, in doing so, more people have lost far more money than people who have 
made money.


Monitor rigorously


We are living in a global village. Any important event happening in any part of the world has an impact on our financial markets. Hence we need to constantly monitor our portfolio and keep affecting the desired changes in it.


If you can’t review your portfolio due to time constraint or lack of knowledge, then you should take the help of a good financial planner or someone who is capable of doing that. If you can’t even do that, then stock investing is not for you. Better put your money in safe or less-risky instruments.


Have realistic expectations


There’s nothing wrong with hoping for the ‘best’ from your investments, but you could be heading for trouble if your financial goals are based on unrealistic assumptions. 


However, it doesn’t mean that you should always expect the same return from the stock markets. Therefore, when Warren Buffett says that earning more than 12 percent in stock is pure dumb luck and you laugh at it, you’re surely inviting trouble for yourself.


Do not let emotions cloud your judgment


Many investors have been losing money in stock markets due to their inability to control emotions, particularly fear and greed. In a bull market, the lure of quick wealth is difficult to resist. Greed augments when investors hear stories of fabulous returns being made in the stock market in a short period of time. 


This leads them to speculate, buy shares of unknown companies or create heavy positions in the futures segment without really understanding the risks involved.
Instead of creating wealth, these investors thus burn their fingers very badly the moment the sentiment in the market reverses. In a bear market, on the other hand, investors panic and sell their shares at rock-bottom prices. Thus, fear and greed are the worst emotions to feel when investing, and it is better not to be guided by them.


Create broad portfolio


Diversification of portfolio across asset classes and instruments is the key factor to earn optimum returns on investments with minimum risk. Level of diversification depends on each investor’s risk taking capacity.


Take informed decisions


Proper research should always be undertaken before investing in stocks. But that is rarely done. Investors generally go by the name of a company or the industry they belong to. This is, however, not the right way of putting one’s money into the stock market.


Conclusion


If you are a newcomer to the financial markets and you are interested in making your own personal investments you need to master the basics if you want to know how to make money in the stock market for beginners.


Education, as we can see will give you the insight you need into the market as well as many other tools of the trade in order for you not to make common mistakes many beginner traders make.

 


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