I have identified 7 mistakes that any beginner in the stock market can make but that must be avoided at all costs so as not to lose his capital in no time.
Why 7 mistakes and not 5 or 10? Quite simply because I only found 7 and it’s a number I like. In finance, no matter how mathematical we may be, we are no less superstitious. Superstitious is not the right term, we make decisions that are sometimes not based on logical foundations. Finally, let us return to the subject and the mistakes not to be made.
The list of the 7 mistakes that all beginners make on the stock market:
Error #1: Not having a trading strategy
As explained in the article “Is there a foolproof way to win on the stock market? “, there is a lot of trading strategy but you have to choose the one that suits you and follow it. If you decide to have a strategy that minimizes risk with a long-term gain, don’t try to make a big deal. Your capital could soar since you are not experienced in this strategy.
Of course, over time, you will evolve and want to change your strategy and you will have the right to do so. You just have to be aware of it and not go from rooster to donkey, otherwise you will get lost.
Error #2: Having too little starting capital
Beginners think that trading is a way to earn a lot of money in a short period of time. You have to learn to regulate yourself. Yes, it’s possible, there are some who do. But many beginners give money to these experienced traders because they have acted on the impulse.
Error #3: Use leverage effects
Beware of leverage effects. It’s really not advisable for a beginner. You can already train for several months with your own capital. Look at where your strengths and weaknesses are and don’t gamble the money you don’t have.
In the stock market, you should only gamble the money you are able to lose! The leverage will be for later, when you are an experienced trader.
Error #4: Do not try to understand your losses
You will have as a beginner many losing positions. Don’t think that it’s the market that’s gone wild. What was wrong was your decision. But why? Why? What happened? What happened? Note on a file or notebook your analysis for each losing position. At first, your comments will not be very constructive, but you will see that your analytical skills will develop over time. After that, you will no longer need your notes.
Error #5: Following the advice of others
Advice from others is often given with good substance but you must be able to analyze it, to know if it seems coherent or not. And these tips, whether they come from financial magazines or not, are often to be taken with a grain of salt.
Error #6: Buy high and sell low
It’s simple, it’s what makes everyone lose. But all this is a matter for the trader’s psychology and not for trend analysis. When you see an upward trend, you hesitate to buy, you let the yarn pass and then you buy because it only increases. But you bought too late and it’s falling apart. So you wait because you know it’s going to come back up, that’s for sure. But it only falls apart. Okay, you want to stop this bleeding, so you sell it, but it’s at its lowest. And a few days later, it goes back up. Certainly not at the level where you bought it, but enough to let you feel bitter.
That’s it, that’s how we all start. But how else could we do it?
This strategy you have adopted is the strategy of the moment. You want to do a big job in a short time. It works yes, but for the more experienced. Those who know how to buy in advance and sell before the fall. Not for beginners.
Think of share purchases as a medium-term purchase. Don’t get carried away by all these trends and don’t make hasty transactions.
Error n°7: Do not invest in weak stocks that will rise according to you
It is so tempting for any beginner to think that a stock of a large company such as Peugeot is at its lowest and will rise again. But it’s a mistake to buy at that time! Think long-term: what is Peugeot’s competitive advantage over others? In your opinion, is the company doing well and in danger of leaving again?
Action should not be seen as an upward trend after a long decline. An action can stay for very long years at the bottom of the wave, an eternity for your portfolio. Don’t put money where it’s not worth it.
In short, learn from your mistakes, don’t let your emotion take over your logic, place only what you are able to lose, don’t think in the short term and everything should start more easily for you.