AtoZForex presents to you the three biggest investment mistakes the investors and traders should avoid in the Finance industry. How to succeed in Stock Investing?
28 October, AtoZForex – "An investment in knowledge pays the best interest," once Benjamin Franklin has stated. When it comes to Trading or investing nothing will pay you more than educating yourself.
Education is the key to success
Educating yourself before making investment decisions, examining the stocks and do research appropriately can make you a mogul in future. Also, as said by the most famous investor - Warren Buffett, “The most important quality for an investor is temperament, not intellect.”
Mastering the financial world is not about being a mathematical or stock market genius, but about the human behavior aspect also. In addition, you might want to spread your investment across different regions, and in a shorter time-frame, you will see your portfolio flagging green.
Yet, there are some wrong steps that could lead you to losses. AtoZForex present to you the three biggest investment mistakes you should avoid:
Never invest without a strategy
Investment strategy comes only when you are properly aware of the financial market, its data facts, and the previous experiences. Invest in different sectors of the market, therefore dividing your bucks accordingly. Never make an investment on rumors, unreliable trading tips and market expectations and future predictions.
Make a proper checklist of stocks and search about its previous dividends, annual growth, quarterly dividends, balance sheets, stock per share earnings etc. Do paper trade or virtual trade using online stock market simulators if you are a beginner and research accordingly.
Beware of Taking Risk and Excessive Moderation
Risk management makes a thin line between profit and losses. So, it is always recommended to technically and fundamentally analyze the stock and justify the best risk and reward ratio. The risk and reward ratio should always be of minimum 2:1.
For example, if stock price went up to 29 EUR per share, you would make 4 EUR for each of your 20 shares for a total of 80 EUR. You paid 500 EUR for it, so you would divide 80 by 500 which gives you 0.16. That means your risk/reward ratio for this example is 0.16:1. The risk-reward calculation is very easy. You simply divide your net reward by maximum risk price. Always maintain a stop loss of minimum 5% for trading and 15 %, if you are investing.
Stop Chasing Performance
Many investors, brokers and fund managers also select stocks which are performing well from the past few years and suggests it to ‘strong buy’. In reality, if a particular stock has done well in past few years, then there is a chance of huge decline.
The long-term investors’ money may flow out of the stock, as dumb money flows into the stock. The particular cycle that leads the stock may come to end. Thus, the strong negative feeling comes to investors mind- “I missed the opportunity and now, I am going to invest or trade on this stock’’.
So, we believe that it is better to focus on market futures, analysis, and research, rather than chasing the performance.
Think we missed something? Let us know in the comments section below.