Stock Market Basics - 3 Rules You Should Know But Never Heard Before
Topics: stock market basics
These stock market basic rules often overlooked by beginners and novice investors. Following these rules won’t put you in better position in stock market investing than any other investors, but will significantly reduce risk of losing money for sure.
Don’t Invest Like a Fund Manager
Fund managers have clients to serve. There are high expectations for them to perform every single year as well. Else, their customers will change to other fund in other companies. Because of that, they can’t afford not to invest the available cash in stock market even although there is no stock worth investing. Otherwise, they will be blamed as unable to utilise clients’ money if the fund is not performing as expected.
As an individual investor, you should not invest in stock just because you have enough cash in hand. Instead, you should invest in stock only if you had identified profitable stocks.
Stock Trading is Just a Probability Game
The truth is, you won’t gain profits in all of your trades. Sometime you win, in other time you lose. If this ever happens to you, don’t be disappointed as yet because nobody in the world had won 100% of their trades. Instead, make sure the gains will overweigh the losses. Which in the end of the day, you are still making money despite losing in some trades.
If you plan to trade stock, always think about the probability of the stock price to move in the direction you want it to be. Trade the stock only if the probability to make money is higher than losing them and be ready to cut losses should the share price move in reverse direction.
Minimize Risks Than Maximise Profits
Preserve capital is the first thing you should be thinking. And, it is not necessarily you have to take greater risk to get better return. In fact, the most successful stock investors and traders are risk averse. But they manage to reduce the risk of losing money by knowing exactly what they do and do exactly what they know. Unlike novice investors, they are only thinking to make as much money as possible even though they know nothing on what they plan to do.
So, next time you want to invest in stock market, make sure you know inside out of the topic and aware what are the risk and return potential for every single stock. Otherwise, you are putting yourself at the unknown risks.
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