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This is first and perhaps the most important post that I want to dedicate to stock market beginners.
In my first introduction to stock market long in year 2012 , i was literally very excited to witness few friends of mine who use to trade during office hours and talk about how they made money. One day i jumped out of my seat and asked, “Dude! how do you that?”
It seems they were waiting for me, and within minutes I galloped all information about opening accounts, segments, news, and whatever could ask. That day I couldn’t sleep because of imagining myself minting money from markets and spending on my..U know!(bachelor dreams:))
But thanks i remembered my parents advice, never swim without testing the waters.
So i started off with a very low investment. But, Just in 1 month wiped my capital
I learned a lesson, Something is there which is not known to me and i decided that even if i had to donate some money in process to learn stock market, i am ready for it.
So in this post, I will share some common mistakes to avoid while beginning in stock market investing or trading
Mistake 1 : Not Understanding the risks involved
Most people who want to start in the stock market don’t understand the risks that their entire capital is in danger if they are :
- Trading in high-risk segments like Futures and Options or commodities.
- Not putting Stop losses.
- Trading in a penny or illiquid stock.
- Buying a huge quantity of shares at a time.
Doing one thing or all in the above list can in just one day, damage anyone financially or mentally. Stock markets have been and will be Risky, But experienced traders always treat it like a business. Just ask yourself- “How much I might lose if things didn’t go in favour?”
Mistake 2: Avoid gathering basic knowledge about the stock market
Beginners make blunders when asked about the basics of the stock market. For Example, If someone earns an engineering degree after 4 years of hard work studying, qualifying exams, mastering a skill, and learning from their mistakes to earn money, How come opening an online account and with some tricks, he will start generating profits?
I always advise a newcomer to visit
www.nseindia.com first and read different sections and then google for different sections.
Investopedia is also a great website with easy and user-friendly content to clarify your doubts and gain information.
If you can, get access to a qualified and experienced mentor, who can guide you step-by-step. Although they may charge a fee, it will be worth rather experimenting with hard-earned money. We can also help to find a good mentorship program.
Mistake 3: Blindly Following recommendations
I understand that no one born an expert in a particular area and might need handholding. But sadly, there are many smart people out there( like fake advisors, Free telegram, or WhatsApp group) to take advantage of this innocence and scam retail traders.
These fraudsters generally lure beginners by putting greedy posts on social media like “Earn 5000-7000 a day with just 15k of investment” or “Get operator based jackpot tips”. If it was so easy, why they have to promote it on social media. Smells fishy…right?
With this speed and returns they should have left elon musk way behind in net worth. Isn’t it Funny!
Some beginners start with their friend or family advice. Though they are well-wishers, might not be as successful as they may look in reality because of our human tendency to cover up our failures. Also, their risk appetite and goals might differ completely from one another which leads to ambiguity.
Third case is TV or social media based advice about a stock might be doubled or tripled in future because of various reasons. Most of these news get published very lately or comes out just a rumour in open public platform. Because of this, lots of retail traders get trapped even for years and face losses.
Mistake 4: Subscribe half baked knowledge or opinion on internet
While we live in an information age, Most of information is not verified specifically related to earning money from stock trading. People have personally confessed to me that they applied certain strategy by watching you tube videos but end up loosing money.
Remember, getting half information more deadly than being ignorant because one does many experiments with his money and get same results every time. I am not against youtube channels and actually love it but most of the time people fail to apply the methods same way as expert hence they do not get same result and blame the source.
Mistake 4: Becomes Greedy and think market a get-rich-quick scheme
Most of the people start chasing for multibagger stocks which promises overnight gains. It amplifies their greed and they get stuck in circuit making penny or illiquid share. When asked why they did it, mostly replied as they heard a news or got message on their cellphone and blah blah blah!
Greed and Fear are two main recipe’s of stock market on which big traders make money.
Stock market is not gambling and if anyone does this way, same results he should expect like in a casino. But then, do not blame stock market.
Conclusion : There is no secret key to stock market, its a process of learning and practice.
Mistake 5: Overconfidence after initial success
Its a common phenomenon observed in beginners in stock market mostly during trending one directional market. People get use to watch their money growing every day and start trading in much bigger quantity of stocks to gain more return. At one unfortunate day, they face big losses and get out of the market.
Being consistent with profits and cutting the losses is the key to smartly earning money. A small success by fluke does not guarantee a long term success.
I advise to learn books on risk and money management to balance greed and fear. In coming posts, will share my views on how to overcome greed and fear.
It’s common to hear about the victories people have trading stocks, but you rarely hear about the losses. As a result, it’s easy for beginner traders to get lured into thinking that successful trading involves little more than knowing the ticker symbol of the latest stock from your neighbor, office colleague, or friend. Most stock market experts recognize that trading is a complicated and challenging business requiring an ongoing commitment. As a child, you didn’t learn to ride your bike without taking a few falls. You didn’t learn to catch a ball in cricket without dropping the ball at least a few dozen times. And you didn’t master your profession without making several mistakes along the way.
It’s no different trading stocks. Most successful traders are constantly studying their craft, looking for an additional edge that may help them make more informed decisions.
Understanding that mistakes are part of the process and learning to reduce them could help you develop a more disciplined, consistent approach to trading.