By James Woolley
The thing about stock market investing is that anyone with some spare capital can play the markets. That means that the markets consist of both highly skilled investors and people with no investing experience at all. The trouble is that a lot of these inexperienced investors will end up losing money very easily.
There are various mistakes that these people make. The first is that they will often have no type of strategy in place to begin with. It’s all well and good getting investing tips from the various stock market-related forums and picking up tips from newspapers and investing magazines, but this is a dangerous strategy and can easily lead to losses.
So many of these so-called experts give out bad advice all the time, which is why they are journalists and not seriously wealthy investors, and a lot of the people on the forums are not much better either. In fact some of them only go on these forums to ramp up their own stocks, and encourage others to buy them so the share price rises as a result.
Another reason why so many people lose money is because they do not have a well-diversified portfolio. It can sometimes be very tempting to plough all of your money into one or two stocks, and while you may make huge returns, you can also lose most of your capital if you’re not careful. In fact you could lose absolutely everything if your chosen companies go bust. This can easily happen if you invest primarily in smaller cap stocks, which is another mistake that a lot of investors make.
Finally even if you do have a well-diversified portfolio, you can still end up losing a lot of money if you don’t apply a solid stop loss strategy. Some people absolutely refuse to admit defeat when the share price keeps on falling, and end up racking up huge losses as a result. So if you cut your losing trades early, you can keep your losses to a minimum and help to avoid any major blowouts.
A similar rule applies to winning trades as well. So many people like to bank profits as soon as they are there, but if you keep on taking profits in the region of 5% and use a stop loss of 10%, for example, then you are sure to end up losing money in the long run.
Stock market investing is far from easily, and it’s very common for people to lose money, particularly when the wider stock market falls. However if you manage your capital wisely and maintain a well-diversified portfolio, then there is no reason why anyone cannot make money from investing, regardless of their previous experience.
About the Author
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