More and more retail Investors are getting into the Stock market. Unfortunately, many novices are also trading stocks and stock options. When is stock trading dangerous for novices? Investopedia writes about dangerous moves for first time investors. They note several things about first time investing or trading and what to watch out for.
Making the Same Stock Trading Mistakes
First time investors tend to make the same mistakes as their predecessors. They follow their emotions, invest in fads, follow tips without checking them out, choose too many penny stocks, and don’t know how to diversify. New investors are wise to limit their investing to money that they can afford to lose, start with small investments, and only increase how much they invest when they understand what they are doing.
This is especially true when trading stocks and options. A new investment option is the Robinhood app on your mobile device. More than ten million people, largely millennials use this way to invest. It allows you to make quick trades from your mobile device, avoid fees, and follow your trades throughout the day. Unfortunately, the company does not always place you in the best trade which is part of how they make their money. More importantly, the app works so fast that it becomes addicting. Too many young investors have seen early flashy profits only to find themselves in debt as their leveraged investments went bad.
When Is Stock Trading Dangerous?
Stock trading is dangerous when you don’t know what you are doing. Smart traders know how to set up their trades. They use tools like moving averages to decide when an investment is likely to be profitable. They understand that the fundamental or intrinsic value of a stock will eventually determine its price. As such they may execute a profitable short term trade and get out when they have seen a reasonable profit. They do not hand around hoping for more profit when they have no idea how that might happen.
Stock trading is a business and not a trip to the casino. Smart traders know how to use technical analysis tools to get into and out of their trades. They know the risks of letting fear and greed drive their trades. They treat each trade as a business deal, take their profit, and look for the next trade. They do not throw good money after bad by chasing losing trades in the hope of a turnaround. The fact is that many trades go bad for very solid reasons and hope has no part in the equation that is meant to lead to profits.
What Is the Right Price in a Stock Trade?
Buy low and sell high is the age-old rule when trading. But, when you are getting in at a low price, someone else thinks that the price will probably go lower. And, when you sell at a high price it is to someone who believes that the price will still go up. Learning when to buy and when to sell takes times and new traders are wise to start slowly, limit their trades, and learn as they go.
