Share Trading Mistakes - Stock Trading Mistakes To Be Avoided

Stock trading is a business where even the slightest mistake can lead to huge loss. Investors must learn common share trading mistakes to be avoided. They must learn from their own past experience, experiences of friends and family members and other market experts.

Here are some tips and advice on how to avoid common stock trading mistakes:
Avoid Stock Trading Mistakes
  1. Quality Vs Quantity: Buy only quality stocks. Do not run after cheap and poor quality stocks.
  2. Cut Losses: If your stock is continuously falling then book loss at 7% - 8% below your purchase price. This will protect you from further loss.
  3. Follow The Market: Yes, follow the market and try to buy at the right price. This way you increase your chances of making profit and in case the market goes against your stock, you will suffer minimum loss.
  4. Low Stock Prices: If price of a stock is low, it doesn't necessarily means that you can buy it. Do all your homework before investing.
  5. Be Practical: Don't be emotional is stock trading business. Be practical. If you have bought a stock for $ 100 and it comes down to $ 92. Sell it off and close your position. Buy it back when the market conditions are in favour of the stock.
  6. Invest for Long Term: Never invest your money in stock market for short-term. Invest for long term.
  7. Portfolio Management: Decide and create your investment portfolio. Investing without a planned portfolio is not professional. Have a diversified portfolio.
  8. Set You Goal: Set your investment goals. Decide when and why do you need the money back and invest accordingly.
  9. Monitor Top Mutual Funds: Keep an eye on top mutual funds and where they are investing money. Fund managers at mutual fund companies are highly qualified and experienced people. They do all expert study and research and study the market before investing. Spot stocks where these companies are investing and do some homework yourself and invest in those stocks.
  10. Have Patience: Never be in hurry in stock market business. This business demands patience. Do not panic.
  11. Monitor Stock Market: Monitor the stock market and current affairs in the country. Monitor top news and act accordingly.
  12. Avoid Margin Trading or Intraday Trading: Margin trading or intraday trading can be highly risky. Avoid trading.
  13. Book Profit at The Right Time: Book your profit at the right time. Never be too greedy.
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Investment Portfolio Management

In my previous articles, I have already explained Have Diversified Portfolio - Why? - Portfolio Management  and Portfolio Vs Age - Portfolio and Age Relationship. Here I am going to explain few other important aspects of better investment portfolio management.

Portfolio Review

Assuming that you did all you homework and managed your portfolio based on your age and risk profile and you have a diversified investment portfolio. In a volatile world of share trading and investments, this is not a guarantee of making money or success. Now you have to be more professional in managing your portfolio to decrease or even eliminate risks. For this, you need to periodically check and review your portfolio and make some changes depending upon the market conditions and other internal and external factors. When to review your portfolio depends on the type and amount of securities held in the portfolio. Remember, it is your hard earned money and you just cannot lose it. It is expert advice to constantly monitor your portfolio and make adjustments as the situation demands. In a volatile market you have no option but to closely monitor and act swiftly and intelligently.

How To Make Adjustments in Portfolio

Portfolio Management
Making adjustments doesn’t mean you need to hurry and buy or sell shares. Here are few expert tips and suggestion to help you.
  • If a stock that you bought earlier had given you your consistent expected results but the price is not going up for some time, don’t rush to sell it off and close your position. Hold the stock. Have patience. The stock will improve when the current unfavorable conditions are gone.
  • Never sell stocks thinking that you can buy it back when the prices are right. When you do this, you have to pay commission or brokerage to your broker for selling and again for buying. Also you may not be able to decide when to buy back the stock.
  • Have a diversified portfolio. Invest in different sectors and in different stocks depending upon your fund and risk profile. As experts say – Never put all your eggs in one basket. Diversify your investment
    to decrease risk.
  • Rotate your investment across different sectors. If a particular sector had done well in a session, it doesn’t means it will do better again in the next session. There is no guarantee. Think like a
    professional investor and not like a trader. Look at sectors where there is less of Extreme Volatility. These are the sectors to target. Book profit from fully valued stocks and reinvest in current and future good “BUY” stocks. You can also consider targeting stocks that are temporarily down for some temporary reasons.

Measure The Performance of Your Portfolio

Monitor and measure the performance of your portfolio twice a month. Compare performance of individual stocks with overall performance of the market. If you have done all your study and research, you can ignore swing of the stock market.

Resources & References:

DIY Investment Strategies
Understanding Stock Market
When & What to Buy? When to Sell?
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Portfolio Vs Age - Portfolio and Age Relationship

The age of a person determines what would be the best investment portfolio for his or her future. Whether to invests more in equities and less in fixed income or less in equities and more in fixed income depends on the age of the person.

As a simple rule, the less the age the more risk a person can take because he or she has more years to earn money.

Portfolio Vs Age
The more the age, the less risk a person must take. So, portfolio management depends on age and risk profile. However, one must remember that fixed income cannot compete with ever-rising inflation. It is equities that can compete with the increasing inflation and hence everyone must have some equity in his or her portfolio. Also it is important to diversify fixed income investment to different tools like government bonds, fixed deposits and debentures etc.

Below table will explain how to manage portfolio based on age:


Age
Portfolio
Above 60 40% in Stocks and Mutual Funds
10% in Cash
50% in Fixed Income
50 to 60 50% in Stocks and Mutual Funds
10% in Cash
40% in Fixed Income
40 to 50 60% in Stocks and Mutual Funds
10% in Cash 
30% in Fixed Income
30 to 40 70% in Stocks and Mutual Funds
10% in Cash
20% in Fixed Income
Below 30 80% in Stocks and Mutual Funds
10% in Cash
10% in Fixed Income

Resources & References:
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Have Diversified Portfolio - Why? - Portfolio Management

It is very important to have a diversified portfolio to minimize risks and protect your investment. Diversification of investment in different investment tools shields you from market fluctuation and potential risks.

Investment in Stock Market

When investing in stock market, it is important to buy shares of different stocks from different sectors. Even the best stocks possess some risk and there is always a chance of loss. Apart from investing in high-risk high-gain shares, it is important to invest in some defensive stocks to protect your hard earned money from potential losses.

Risk-Free Investment

Investors must also invest some portion of their saving in government bonds and Bank Fixed Deposits to safeguard their investments as these tools possess very less to no risk. These investment tools also offer fixed income.

Portfolio management is all about managing investment so that the invested money grows with minimum risk. The best strategy to portfolio management would be to select the best performing sectors and then pick the best performing stocks within these sectors and then invest your money. Apart from stock market, people should also invest some portion of their saving in money market fund and in fixed income tools.

Portfolio Management

Resources & References:
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Stock Trading | Share Trading | Mutual Fund | Stock Market

Share trading, stock trading, mutual fund, stock markets are all terms of investment. These investment tools help to invest your savings in the growth of an economy by becoming shareholder of a company and help your money grow with growth of economy and companies.

Beginners to investment need to understand the basics of share trading and how to invest in stock market. Proper study and research is a must for a profitable investment and to avoid loss.

Share trading is all about making wise decisions as to when to buy shares, when to sell shares and whether or not to hold shares of a company.

This website is designed to help beginners understand the basics fundamentals of share trading and stock market and invest their money wisely and make profit. Investors who have some gained some experience in share trading may also find this website very helpful.


Explore following articles to learn all about share trading and stock market.

New to Investing?
Saving & Investment Options
Why Invest in Equities?

Set Your Investment Goals
Basics of Stock Market

Invest Like an Expert
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When To Buy Or Sell Stocks

My Stock is Going Up. Should I buy More?

If your stock climbs 20% to 25% in 7-8 weeks and the stock still shows strength and growth signals, you can consider buying more of this stock.

How To Understand When to Buy Stocks?

Here are some expert tips that can help you understand and decide when and how to select stocks to buy:
  1. If the company shows growth of about 20% to 25% in last 3 years and last 3 quarters and has potential for long-term and short-term earnings growth, you can consider buying it.
  2. If the sales, profit margins and return on equity is consistently growing in the last 3 quarters, the stock is worth investing.
  3. If the company has launched some dynamic new products or services with great demand or if there is some strong change in the top management of the company, the stock need some attention.
  4. Focus on leading sectors and leading companies in the sector. Don't run after cheap stocks.
  5. Focus on stock where leading mutual funds are investing. Mutual fund companies do lot of study and research before investing.
  6. Focus on stocks that make new highs with high volume.
How to Understand When to Sell Stocks?

When to Buy and Sell Stocks
When to buy stocks is relatively easy to understand. When to sell stocks needs some thinking. Here are some tips to help.
  1. If you  bought a stock with some expectation but your expectation is not met, consider selling the stock.
  2. If your stock has made new highs, consider selling some portion of your position. Never sell all your shares. Monitor the stock and the market before selling all your shares.
  3. If you have better alternative stocks than your poorly performing stock, consider selling your stock and take new position in a better performing stock.
  4. Consider selling your stock if you are getting tax benefits.
  5. If something wrong happens with a company and you are expecting things to get worse, consider selling the stock.
  6. If the earning of a company is not improving over 6 to 9 months, then the stock needs some attention. Study the reasons and if required, consider selling the stock.
  7. If you are making loss with a stock and there is no sign of recovery, consider selling the stock. As a basic rule of share trading, most experienced investors sell their stock if it falls by 8% of the buy price. Not booking loss at an early stage can lead to even bigger loss. However, if you have done your homework and have picked the best stock, you can still keep it in your portfolio. Monitor the stock and the company consistently and act according to the situation.
References & Resources:
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How to Buy Stocks at Bargain Price

Many good stocks are often available at bargain prices.

With some basic tips and tricks, you can easily spot these stocks and buy the shares.

Here are some expert tips to find and buy stocks at bargain:


How to Select Stocks to Buy at Bargain
Buy Shares at Bargain
  1. If you follow the stock market and related news and updates, find out stocks that other investors are not interested in because of some short-term temporary reason.
  2. If a sector is doing well but some stock within the sector is not doing well and is not favorable to investors, watch those stock. Do some research on them and pick the best ones.
  3. Use the P/E ratio to determine good stocks that are out of favor. Stocks with low P/E ratio  can sometimes signal out of favor stocks.
  4. Pick stocks and study their Price-to-Sales Ratio. Look for stocks that have high Price-to-Sales Ratio in the past but are temporarily low at the current market situation.
  5. Look for stocks that have about 20% or above Earnings Growth and a P/E Ration at about 10. These stocks are worth investing. Sometimes these stocks are overlooked by investors and you can take the opportunity to buy them at bargain price.
  6. Look for stocks that have higher Return on Equity. This data will tell you how much your investment will earn.
Using above tips, investors can easily find good stocks that are out of favor and are worth investing.

Resources & References:
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