Avoiding Investing Errors in the Stock MarketAdvice is usually given with a positive approach and it is easier to receive advice when someone tells you how to do something. In the stock market, it is equally valuable to have someone tell you how NOT to do certain things; avoiding certain investing errors can be very valuable to an investor as he or she finds the best way to begin investing in the stock market. Here is a short list of “how not to’s”, investing errors that are wise to avoid.
- Not developing a stock trading plan – A stock trading plan is your map leading to investment success. This investing error is like traveling to a new location without knowing where you are going or what means of travel you are taking. You simply cannot be successful in the stock market if you don’t define your goals and plans.
- Not following your stock trading plan – Really, if you took the time to map out your future and define your goals and plans for investing in the stock market, how big of a mistake do you think it is not to follow your plan? This is worse than not having a plan because it usually involves a staggering “in and out” approach where you follow for a while, then stray, the return. This is so inconsistent that you cannot build any real success with your investing.
- Not performing technical analysis - Technical analysis provides the proof an investor needs to be sure a company is worthy of his or her investment dollars. Without doing stock technical analysis, an investor’s investing error has just reduced trading to the level of buying a lottery ticket and hoping for a win.
- Doing too much technical analysis – This is opposite of the previous investing error. An investor who never holds on to a stock too long or doesn’t buy at the best price because he or she is consumed with excessive research is not going to be a successful trader. Follow your trading plan, use a stock trading system like Japanese Candlesticks and perform enough analysis to confirm your purchase and then move on it. Waiting too long can cause you to lose profit or pay too much because of your delay.
- Not diversifying your portfolio – Portfolio diversification is important because a portfolio that it too heavy in one or two holdings or a single stock sector is vulnerable if a catastrophic failure hits in one area. Who would have thought that Enron or WorldCom would have come crashing down like they did? If you had all of your holdings in these two companies, your investment error probably left you with nothing to show for your troubles. Spreading out your portfolio helps you avoid that trap.
- Falling prey to unrealistic expectations – Investing only in companies that promise triple digit returns is an investment error that is a recipe for disaster. Fortunes are made by having a strong portfolio that allows you to take chances when you find a potentially dynamic stock. Investing only in companies that promise triple digit returns is an investment error that is a recipe for disaster. Fortunes are made by having a strong portfolio that allows you to take chances when you find a potentially dynamic stock. Investing only in the next hot stock will probably leave you on the outside looking in some day.
Investing in the stock market isn’t rocket science but it does require an investor to be diligent, prepared and wise. You will get plenty of “how to” advice but this “now not to” advice can help you build a solid footing while you learn to invest in the stock market and avoid investing errors.