You know that voice in your head, that says “buy” when you see a stock you know? It is sometimes the voice of your emotions, and emotional buying is never the best strategy. Sometimes it is really hard to drop emotions when trading in stocks because as humans, emotion is an integral part of us. But every stocktrader must know how to pull off the garment of emotions when trading, else, one may make the following mistakes:
Buying because it’s trendy
There are times when there is a sudden buzz around a particular stock, and everyone seems to be going for it. That is not a great time to go for it. Whenever you buy a stock that many people are buying too, it will be expensive – in some cases even severely overpriced. That’s why you should leverage research from experts like ARM and even do your own research, to allow you anticipate the possible trendy stock that people will demand for, and you get to sell at a higher price.
Selling when it looks bad
The best time to buy shares is when prices drop. It allows you get a piece of the company at a cheaper rate. A lot of investors who leverage emotions, start to panic and sell their stocks when there is a price drop, forgetting that there will be a price gain soon. Buy when is cheap or the market is bleeding and sell when the market is booming.
Spending all your money
New investors often get excited about the stock market and invest all the money for their portfolio within the first few days. The results are careless purchases and a lack of liquidity if prices drop. You should put money into your trading account on a regular basis, but always leave some of it there – for the times, when stock prices drop to allow you buy more stocks at a cheaper cost
Selling all your stocks in a crash
The reality is the next stock market crash is coming. However, we’ve already survived quite a few crashes in recent time. That means: If the stock market crashes, stay cool. It will recover. What won’t recover are your savings if you sell all your shares at a time when everyone else is doing the same. It’s hard, but you should always follow the old rule: invest slowly, sell slowly.
Putting all eggs in one basket
Anyone who discovers a promising industry is tempted to really go for it. Why buy one tech giant when you can buy three? The problem is, what do you do if the industry collapses? In that case the value of your portfolio can quickly evaporate. That’s why you need to diversify – to invest in many different areas at the same time. Even if one of them temporarily crashes, it won’t hurt you too much. And remember: If the value of a stock drops, it’s a good reason to buy more.