Stock Market Trading 101: Mistakes You Should Avoid

Due to how lucrative the world of stock market trading appears to be

, a lot of people today are trying to cash in on some trading ventures that they feel they are able to gain a lot from.

Though it is true that trading in the stock market can help you in earning a good amount of money, you should learn to be careful in every trading venture you dive into. To help you in preventing big losses, here are some common mistakes that amateur trades usually commit and how you can avoid them.

First off, you should never invest in the company that you are currently working for. This can be very risky. Many companies today actually encourage their employees to invest in some company shares. There are some individuals who do give in, sometimes investing their lifetime savings. The risk here is that if your company goes kaput, you will not only lose your job but the money that you have put into your investment as well.

Another mistake that you should avoid is investing in just one company, as the risk is similar to the first one mentioned. Instead, you should try to diversify, investing your money in various stocks and investments. For instance, invest in a retail chain, a stock which is the banking sector and a defence contractor. Make sure to steer clear of pharmaceuticals and medical research companies that claim to have invented new drugs or products.

You should also avoid investing all of your capital at once. Many beginner traders commit this mistake, only to end up losing their money. Keep in mind that markets fluctuate throughout the year so it would be best to plan ahead and come up with trading strategies that are able to work with the movement of the stock market. Also spread out your capital commitment over a number of purchases over a year or longer.

You also need to remember that ignoring or not being informed of seasonal trades can lead you to your stock market trading demise. Remember that markets have a tendency to dip to extreme lows in the months of March and October. As a matter of fact, even if you commit the three previous mistakes to avoid mentioned so far, you will still be able to make money by knowing and using seasonal trends as you make your trading decisions.

Lastly, you should never assume that the true company value is a good indicator of its true stock value, as this is not necessarily true, Keep in mind that stocks are just trading vehicles and their values are ultimately determined by the market's supply and demand.

On top of this, you should also avoid mixing your emotions with your trading ventures. When you become emotional, you tend to make irrational and uninformed decisions, which could lead to losses. You should also consider taking stock market trading courses such as those which are offered by Traders University to provide you with more information and tips on how to go about in stock market trading.

by: Sally Johnston

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