Investing or trading in stock market sounds both challenging as well as easy. It does not only requires a disciplined approach, but also proper planning and a sound understanding of the market volatility.
However, the stock world provides various apps for your money to grow. You can trade or invest in the market based on your wish and need. Online trading helps you to trade at ease and your convenience without you having to meet the broker. Here are golden rules to follow when trading stocks
Avoid the “herd” mentality
Most times a buyer’s decision is always influenced by actions of his acquaintances, neighbours or relatives. However, this strategy is bound to backfire in the long run.
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!”
Take informed decision
Proper research should always be undertaken before investing in stocks.
Invest in what you know and understand
It is always a good idea to trade stocks that you are familiar with and understand what makes their value rise and fall. For this, you need to do your research and find out what moves the stocks you are interested in. Also it is important to understand the difference between defensive and cyclical stocks.
Defensive stocks belong to companies whose performance and profits are less impacted by changes in economic conditions. Examples are pharmaceuticals or food while Cyclical stocks belong to companies whose performance, and therefore, profits, are sensitive to changes in the economic conditions. Examples of these stocks are real estate and automotive stocks. Once the difference is known, it is easier to track the economic and other news events that are likely to impact share price movements.
Never deal with unregistered brokers or intermediaries
When trading or investing in stock market, you have to be very careful in choosing the broker. Check the background or reputation of the broker before opening an account
Don’t try to time the market
A majority of investors always try to time the market despite the warnings of financial planners, and thus lose their hard-earned money in the process.
Follow a disciplined investment approach
Investors who put in money systematically, in the right shares and held on to their investments patiently have been seen generating outstanding returns. Hence, it is prudent to have patience and follow a disciplined investment approach besides keeping a long-term broad picture in mind.
Never be emotional
Inability to control emotions has caused many investors to lose money in the stock market. Be practical and have realistic expectations. Also fear and greed are the worst emotions to feel when investing and it is better not to be guided by them.
Take calculated risk
You have to take risks in accordance to your risk potential. Understand your commitments and dependants, take risk wisely. You can only lose money that which you can afford to lose.
We are in a global village and an important event happening in any part of the world has an impact on the stock market. Therefore, you need to constantly monitor your portfolio and keep affecting desired changes in it. In a case whereby you can’t review your portfolio due to time constraint or lack of knowledge, it is advisable to take the help of a good financial planner.
Invest only your surplus fund
If you want to take risk in the stock market, ensure you have surplus funds which you can afford to lose. This does not mean you will lose money in the present scenario. Your investments can give you huge gains too in the months to come.