12 Tips That Every Stock Market Investor Must Know

Investing in the stock market is one of the best methods to build wealth over the long term, but it can be difficult and stressful to get begun if you’ve never invested before.

The good news is that investing is more accessible than ever. Years ago, you had to work with stockbrokers who charged heavy fees and might not have your best interest in mind. Today, anyone can start investing with just a few dollars and there is a wealth of investment information and advice on the Internet.

1. Know Your Risk Tolerance

Another factor that will impact your portfolio is your risk tolerance. Even if you’re investing for the long term and want to increase your portfolio’s value over time, your personal risk tolerance may lead you to less risky investments.

Someone with a high-risk tolerance might be willing to build a portfolio composed solely of stocks if they have a long time horizon. People who don’t feel comfortable with that risk might want to hold a mixture of stocks and bonds even if their investment goals are long-term.

2. Understand Different Types of Orders

To help traders who cannot spend long hours in front of the screen when the market is live, most stockbrokers now offer many different types of trade orders. Some of the most common types of trades are Normal, Stoploss (SL), Margin Intraday Square up (MIS), Bracket Order (BO), Limit Order, and Cover Order (CO).

Understand how different types of orders work in order to be a knowledgeable trader. If you are looking for how to invest in stocks for beginners with little money, it is better to stick to normal and stop-loss orders. Normal orders can only be placed if you have the required capital for the purchase available in your trading account.

3. Follow a disciplined investment approach

Historically it has been witnessed that even great bull runs have shown bouts of panic moments. The volatility witnessed in the markets has inevitably made investors lose money despite the great bull runs.

However, the investors who put in money systematically, in the right shares, and held on to their investments patiently have been seen generating outstanding returns. Hence, it is prudent to have patience and follow a disciplined investment approach besides keeping a long-term broad picture in mind.

4. Do not let emotions cloud your judgement

Many investors have been losing money in stock markets due to their inability to control emotions, particularly fear and greed. In a bull market, the lure of quick wealth is difficult to resist. Greed augments when investors hear stories of fabulous returns being made in the stock market in a short period of time. “This leads them to speculate, buy shares of unknown companies or create heavy positions in the futures segment without really understanding the risks involved,” says Kapur.

Instead of creating wealth, these investors thus burn their fingers very badly the moment the sentiment in the market reverses. In a bear market, on the other hand, investors panic and sell their shares at rock-bottom prices. Thus, fear and greed are the worst emotions to feel when investing, and it is better not to be guided by them.

5. Call the Company

This is the top method to perform some great due diligence and learn all about the investment and its prospects. Every publicly-traded stock on the market has an investor relations contact, and they will be more than happy to answer all of your questions. It’s free, and it very well might help you understand whether or not your investment is going to be profitable.

6. Avoid trading overactivity

Checking in on your stocks once per quarter — such as when you receive quarterly reports — is plenty. But it’s hard not to keep a constant eye on the scoreboard. This can lead to overreacting to short-term events, focusing on share price instead of company value, and feeling like you need to do something when no action is warranted.

When one of your stocks experiences a sharp price movement, find out what triggered the event. Is your stock the victim of collateral damage from the market responding to an unrelated event? Has something changed in the underlying business of the company? Is it something that meaningfully affects your long-term outlook?

7. Let Gains Run

Lots of stocks start moving in the right direction, and they just keep climbing. Typically the shares reach well beyond what most investors might expect.

Some of America’s greatest companies started as penny stocks, and now trade for $10, $20, or even $50 per share. If the business continues to grow, savvy investors hold on for the ride. Meanwhile, many others sell far too soon, gloating about their 100% gain, then crying as the shapes reach for the stars.

To avoid selling too soon, constantly re-assess the underlying company. If they are enjoying rising market share, revenues, and customer levels, you may want to hold long-term.

8. Understand Expectancy of A Move

A new trader or investor must know that no matter how old is one in the game, one can go wrong and can never correctly predict the market behavior always. Often, well-experienced players have also gone wrong in their trades or bets.

Here, it is important to know how much money you can make in your favor instead of how much money you have lost when the trade results in a loss.

9. Paper Trade

So many people want to jump into penny stocks but aren’t sure how to begin. They are also cautious of the risks or don’t understand the process of buying and selling.

Paper trading is the answer. Simply keep track of stocks you would have bought, but do this with imaginary money. Paper trading will make all the difference in your trading results and stock market understanding. No risk, and no money required!

10. Do Not Short-Sell in the Initial Days

You can make money in the stock market, even when the price of a stock is falling. Known as short-selling, it is the opposite of placing a buy order. With a buy order, you first purchase the shares at a particular price and then sell the same probably at a higher price. The difference in price multiplied by the number of shares you have purchased will be your profit.

With short-selling, you first place a sell order at a particular price and then buy the same probably at a lower price. The difference in price multiplied by the number of shares sold will be your profit. While short-selling allows you to take advantage of a falling market, you should avoid using it when you are still new. Master the basic buy-and-sell order first before experimenting with sell-and-buy.

11. Invest only your surplus funds

If you want to take risks in a volatile market like this, then see whether you have surplus funds which you can afford to lose. It is not necessary that you will lose money in the present scenario. Your investments can give you huge gains too in the months to come.

But no one can be hundred percent sure. That is why you will have to take risks. No need to say that invest only if you are flush with surplus funds.

12. Don’t Buy What Everyone Else Is Buying

The act of mob-mentality buying means the investment is overvalued. Whether pot penny stocks, Bitcoin-related businesses, companies from the dotcom mania, or Dutch tulip bulbs, you will never get a fair price.

Another unfortunate side of this equation is that when the majority are hearing about the latest craze and jumping on board, the stampede is just about to come to an end. Fortunes will be invested and lost within weeks, if not days.

If you want to become a stunning investor, you need to be right in the middle of the action. There is no sufficient place to hone your skills, learn rapidly, and continuously adapt than among the highly volatile, quickly moving world of the smallest among investments.

Apply the wisdom of these 12 tips to your own trading style, no matter what type of company or price of shares you may be buying or selling.