For anyone that is looking to build their wealth, stock market trading would likely have crossed their mind. However, like many others, you may seem discouraged by the risks that come with being a stock investor, and the volatility of the market. In a previous study by Ally Invest, only 1 in 3 millennials said they were investing in the stock market mainly due to their fear and apprehension.
Earlier this year, Americans admitted they were on edge waiting for the market to crash- a move that is yet to happen. While the risks that are attached to stock market trading can be high, it also comes with unmatched rewards. Whether you are looking to kickstart your career as a daytrader or invest for your financial independence, succeeding in the stock market relies on a few basic rules.
Skip The Herd Mentality
A common term in behavioral finance, herd mentality refers to the popular tendency of investors to follow the trends or actions of other investors. The imitation of other’s actions on the stock market is often quite noticeable amongst novice investors- those that are new to investing but want to take advantage of the benefits of investing.
While it may seem tempting to just follow the crowd and replicate fellow investors’ stock market choices, it neglects a key issue: you remain uninformed about the stock market and investing. Another reason why herd mentality does not work: it drives market volatility. A good example of that was the recent bubble burst in the cryptocurrency market.
For the last year, interest in the cryptocurrency market exploded tenfold as investors flocked to digital currency investments. In May this year, that bubble burst, and within 24 hours investors had lost 18 percent. Therefore, you leave yourself more vulnerable to market losses, and slower reaction times. Instead, it pays off to spend some time doing your research before choosing your stocks.
Become Familiar With An Industry Before Investing In It
Following on from the topic of doing your own research, it is also highly recommended that you spend time getting to know the industry you want to invest in before choosing stocks. If you do not understand the basics of the industry you are investing in, chances are that you will be choosing your stock investments blindly. It helps to know the industry risks, developments, and key competitors of the sector your stock investments are in.
A good way to do this is to use industry-specific newsletters and training resources. For instance, those considering real estate investments can use a subscription newsletter targeting real estate investors. Based on a Millionacres review, users can access real estate investment articles for free or choose to subscribe for membership for more detailed guidance on stock picks, options, and crowdfunding resources for real estate investors.
Set Up An Informed Trading Plan And Stick To It
The stock market can be incredibly volatile. It helps to have a well-informed trading plan to avoid getting swept up in the emotions of it. Having a trading plan also helps you educate yourself on key stock trading terms that every novice should know like bid-ask spread, bear market, or what is a blue-chip stock. To help you with drafting a trading plan, consider 3 key sections: entry plan, exit plan, and money management. Answer questions on how long you want to trade for and the capital restrictions you may have. When combined, these answers will give you a good backbone to build your trading plan.
Finding success on the stock market as a new investor does not happen overnight. While the stock market is indeed fast-paced, it takes great preparation and continuous adjustments to your trading strategy. While there is no surefire formula for beating the stock market, many of the previous stories have been built on these fundamentals.