Stock Trading is considered by many as a risky and complex business. Some even think it is a scary affair and are concerned about being cheated, fooled and even losing their valuables. As a result, there are lots of myths and misconceptions about investing or making a business in stock market. Such negative impressions may be a barrier to your success in this field.
In order to avoid them and help you maximize your profit making, here are some details on the common misconceptions. These points are detailed to help you have the right frame of mind when trading. Do not be discouraged by them.
#1 Stock trading is equivalent to gambling
This idea is spread everywhere. It’s an age-old misconception and is completely untrue. When gambling, you are unsure of the outcome. In contrary, stock trading is an art, a business and mind game. It’s a business in which you need to learn about trends, how the market works and how to capitalize on strong market. For a beginner, it may look arbitrary and complex but experts would say - there is always a strong reason behind whatever happens in the market. If you want to be absolutely safe, try investing in ‘blue-chips’ which are considered safer and more reputable.
#2 Investing in stocks requires deep financial knowledge
Yes, financial knowledge and knowing the stock trends in different segments does help starters. But that does not mean a new comer cannot do well in the business. There are plenty of stock advisers and resources to help you learn the business.
The best practice would be to learn the market yourself. Of course, you can seek help from people you know and can rely upon.
#3 Stock market is for the youth generation
But why? There is absolutely no conceivable reason as to why older people cannot invest in stock market. True, the younger generation has higher risk appetite. However, if you are financially secured there is no harm in saving some of your money for the stock investment.
#4 Buying stocks at lows
Yes, buying stocks at lows and selling them at highs is the principle of stock investment. But do not always take it as a rule of the thumb. If a stock is down, determine the reason for its fall. If it happens to be an ordinary correction in prices, then you can look forward to buy them. If a stock is down due to a bad news or a major event, then you may have to wait.
#5 Stocks that are down will rise again
As a corollary of the previous point, when a stock has fallen, it does not necessarily mean it will go up again. The price of a stock depends on many things; it reflects the perceived value of a company. If the company does not show improvement, there is almost no chance of the stock performing in the market. Hence, you must avoid buying with this assumption in mind.
#6 Must sell at highs
In continuation to the previous two points, when a stock is at high, do not anticipate an immediate crash and sell your stocks. Sometimes when a company is doing well, it encourages its investors to hang on or buy more and growth will continue to exist for some time in the future. Hence, look for the right time to sell your stock unless you are in need of money urgently. Otherwise, you will miss out on considerable profits.
#7 Market forecasts are perfect
People who understand the market can analyze the outcome to some extent. But expectations and forecasts for the future are not always perfect. Sometimes, everything may fall flat as a result of a recent development. Shocks, bad news and negative developments can come from nowhere and one should be prepared for it.
The best practice for traders would be to study the market by themselves, understand and analyze market trends and more importantly keep following all the good and bad reports of the company you have invested or about to invest.
All the Best!!