Every year, new investors turn to the stock market with visions of growing their money. In actuality, however, making money through investing in equities isn’t as simple as it might seem. In order to be successful, investors have to not only be extremely patient but also extremely disciplined. They need to have a solid handle on how the stock market works and they need to be willing to spend a lot of time conducting research.
In the recent past, the stock market has been extremely volatile. This has made it difficult for investors to decide what actions to take to get the most out of their investments.
There is no single right answer when it comes to how to succeed when trading stocks. There are, however, some simple rules that you can follow that can improve your chances of success.
- Break free from the pack.
It is easy to fall into the trap of doing whatever the people around you are doing. Most buyers base their purchasing decisions on the investments that are being made by the people that they know. If all of their friends or relatives are investing in a particular company, they most likely will do the same. Unfortunately, this investment strategy rarely works out.
Breaking free from the pack is essential if you want to succeed in stock trading. In fact, all you have to do is listen to some of the advice given by Warren Buffett. In the past, he has said that one of the keys to success is to do the opposite of whatever the majority of investors are doing at any given time.
- Do research.
Never invest in a company blindly. Instead, always do research ahead of time so that you fully understand what the business is all about and what chances they have for success. Don’t invest based solely on the company’s name or on the industry that they operate in. Instead, really get to know a business before investing.
- Stick to industries that you are familiar with.
When you purchase stock, you are buying a stake in a company. Because of that, you should only invest in companies that you understand. The better understanding you have of the industry, the better judgment you can make as to a particular business’s potential for success.
- Avoid attempting to play the market.
One major mistake that most investors make at one point or another is attempting to time the market. Even though people are often warned about this technique, it is hard to avoid the temptation to guess where the market is heading.
Unfortunately, this is a game that is impossible to win. Although you may get lucky periodically, it is unlikely that you will make the right predictions over and over again. Even though it is tempting to try to figure out when the market will experience highs and lows, it is a no-win proposition. Throughout the past, investors have gotten significantly burned over and over again trying to do just that.
- Develop a specific approach to investing and stick with it.
All that you have to do is look to the past for examples of bursts of panic in the midst of bull runs. Volatile markets make investors extremely nervous, which can cause them to make rash decisions that lead to major losses.
The best way to avoid this problem is by coming up with a systematic approach to investing. Patience really pays off when it comes to the stock market. Typically, the people who are the most likely to succeed are the ones who don’t react during times of panic. Following a more established approach to investing is a far better way to succeed than reacting to every change in the market.
- Keep your emotions in check.
One of the hardest parts about investing in penny stocks or any stocks for that matter is keeping your emotions from getting in the way. It is easy to become fearful when the market takes a turn for the worse. At the same time, it is also easy to become greedy when things are going well. Both of these emotions can lead to irrational actions that wind up costing you money.
When investors act based on their emotions, they usually wind up getting burned. During a bear market, investors succumb to fear, selling off shares at prices that are far lower than what they bought them for. During a bull market, they become greedy, buying shares for more money than they are generally worth. Both of these approaches can backfire.
- Spread your risk.
Your stock portfolio should be adequately diversified. Investing in many different companies and many different industries can help minimize risk. When your investments are spread out, you are less likely to experience major losses.
- Maintain a sensible view of the future.
If you set your sights too high or have unrealistic expectations, you could wind up disappointed. Without a doubt, some stocks have performed exceptionally well in the past. If you go into investing thinking that they are going to continue to do so in the future, however, you are most likely setting yourself up for disappointment.
A stock’s past performance has very little to do with how it will perform in the future. You need to be realistic when thinking about how much money you stand to make. By planning for every eventuality, you can get a much more realistic view of the future.
- Only invest money that you can afford to lose.
Investing in the stock market is incredibly risky. No matter how stable it seems, volatility is always lurking around the corner. Because of that, you should only invest extra money that won’t cause significant financial harm if you happen to lose it. Although it is possible to grow your money in the stock market, you can also lose everything. Because of that, you should never put everything on the line. Instead, only invest extra money that won’t hurt you too much if you lose it.
- Keep an eye on what is happening.
The stock market is affected by outside factors on a daily basis. Keep an eye on your portfolio, watching for any major changes. If you don’t have the time to do this on your own, you should consider hiring a financial planner who can track your investments for you. That way, you will know where your money stands at any given time.
Byron Simpson is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance cent.