5 Share Dealing Mistakes
Many mistakes made during share dealing are self-inflicted. Lack of patience and our inability to control our impulses are some of the reasons many traders never get to succeed.
Trading is not as straightforward as some may think. There’s a lot you need to know before you can start investing. The following are some share dealing mistakes to avoid.
1. Playing Penny Shares
On a surface level, penny stocks seem like a great idea. They cost less per share compared to blue chip stocks and have more upside potential if the price goes up by a dollar. However, most traders ignore the volatility that comes with such shares.
Poor companies have a higher chance of failure. A loss of just $0.5 on a penny stock could be very damaging. Additionally, such shares are prone to manipulation and getting solid information on them is also difficult.
2. Putting All Your Eggs In One Basket
You shouldn’t invest all your capital in one stock no matter how promising it looks. Even the best companies have issues. Their stocks can still decline dramatically.
Failing to diversify can get you more upside, but the risk is also greater. If you are a first-time investor especially, invest in a variety of shares. The mistakes you make along the way in this manner won’t be as costly since they will only affect a particular stock at a time.
3. Buying Stocks That Have Performed Well
Headlines can be quite tempting. They make you feel like you’re missing out on a real opportunity. But just because something has performed well doesn’t necessarily mean it will perform as well in the future.
Sometimes past performance can be a good reason to buy. If a company has a long history of success, for example, there is a good possibility its value will continue to rise. However, you need a better reason why the value of the shares will rise in future before making any investment decision.
4. Investing All That You Have
Many people make the mistake of investing money they can’t afford to lose. Whether you are a trader or a buy-and-hold investor, investing your money all at once is not advisable.
If you hope to stay in business for long, you will need to set money aside for emergencies and emerging opportunities. If you don’t have enough cash to invest and still set some aside for emergencies, then investing may not make sense for you at the moment.
5. Not Doing Your Homework
Newbie traders are prone to this problem. You should always do your homework before initiating a trade. An experienced trader could identify trading patterns, the timing of data releases and seasonal trends, but a new trader may not.
Adequate research is necessary, and failure to conduct it could be costly in the long run. You shouldn’t rush into trading before learning all you need to know.
As long as you can avoid the share dealing mistakes listed above, trading can be quite profitable. Mistakes can be costly especially to beginner traders who may not have the ability to bounce back, but they are part of the learning process.
Just ensure to keep an open mind and avoid making the same mistake twice, and you will be well on your way to becoming a successful investor.