Trading with stocks is a great way to earn profits or generate passive income. It allows you to invest in something that you believe will be profitable and help you make your money grow. However, trading with stocks is not for everyone and can be very risky and sometimes even lead to losses if done incorrectly. After all, the stock market is speculative, and prices go up and down frequently, resulting in intra-day changes of 20% or more in share price.
You can read this article for more information.
Contents
Not having a strategy
Before buying or selling any stock, one must decide on the type of portfolio they want to build. It should include long term, medium-term and short term goals. It is also vital to consider which industries you would like your investment in (for example, banking, retail, energy etc.) The Australian sharemarket has top companies in every industry, meaning almost everyone’s interests are covered.
Once these factors are decided upon, it is easier to make better trading decisions. If your plan is only based on fear instead of facts, then the chances are that you will end up making poor trading decisions and possibly lose money in the process.
Not doing research properly before trading
The first step to avoid this mistake is using reliable sources to get information about a potential stock you are interested in. In Australia, there are many ways of getting reliable information about companies, from reading their annual reports and other financial statements to using online databases provided by the Australian Securities Exchange to check historical price graphs and other data on them.
Once this research is done, it is best to decide whether you want to buy or sell the company’s stock.
Ignoring market volatility
A share market is an exciting place where shares of different stocks go up and down during trading hours. It would be ideal if every trade made resulted in a profit, but this isn’t reality. The share market can be very volatile, which means prices change rapidly at any given time due to various factors such as company financial reports, market sentiment and economic data. It is crucial to understand trading basics like support and resistance levels to buy or sell stocks when they are over/under priced respectively.
Being greedy when buying
It is natural for anyone involved in the share market to want their shares in a particular stock to go up fast. After all, why wouldn’t you? However, this can lead to mistakes if you ignore vital signs that may not be suitable for bringing on your investment. For example, an increase of 20% overnight could mean that the price has reached its peak or that there are no more buyers, which means that it might be best to wait until the price drops again before making any trades.
Not being informed about taxes
Compared to other types of investments, the Australian share market is not considered tax-effective. However, there are ways to save on taxes if you trade shares correctly. The simplest way that anyone can do this is by holding their stock for at least 12 months before selling them, or else they will be charged capital gains tax which could range from 0% to 30%. You can find this information online on any government website or financial magazine.
Overestimating yourself
When trading stocks, it’s best to keep things simple and not try too hard. For example, it’s ok to make mistakes as long as you don’t repeat them twice because doing so means that you either didn’t learn from your previous mistake or are not ready to trade stocks.
In addition, overconfidence is a telltale sign of an amateur trader. It means that they have too much faith in their abilities, which can lead to more mistakes because they might not be open to receiving advice about particular risky behaviour they might be exhibiting.
Being lazy when looking at financial reports
Financial reports describe how well a company has done during any given period. It also tells whether there were any losses or significant changes in the top management, acting auditor and key company information which could affect its share price. As you can find most financial reports online, it’s best for anyone interested in making trades with a particular company to read the reports for themselves and not rely on what other people have told them.
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