The stock market is an investment avenue where the sky is the limit to make profits. Since the stock market has the potential to generate huge returns, there are equal risks associated with it. Therefore, one has to be very careful while trading and investing in the stock market. To assist you in overcoming risks and losses that you may incur in the share market, below are a few tips that would help you in making good returns and avoiding big losses.
Do Not Follow Herd Mentality
People often invest or trade in share market on the advice of close and dear ones. This approach is not right as following the herd mentality can result in big losses. It is always advisable to invest in the stocks only after doing a proper analysis of a company. Getting influenced by peers in hope of higher returns can result in big losses, so it must be avoided.
Put a Stop Loss
Stop loss saves the investor or trader from incurring losses beyond a certain point. It is a good practice for the intraday traders to put stop loss in place because the share market is volatile and sudden price movement can lead to losses. Stop loss not only protects your capital but also limits your losses.
Do Not Invest Without Financial Goals
The investment in the stock market should be on the basis of your financial goals. If you do not have a financial objective and are making an investment in the share market, it could lead to losses. The right investment approach in the stock market is to know what you expect out of your money. Having a financial goal keeps you disciplined and you avoid making mistakes.
Investing Without Consulting Experts And Financial Advisors
Experts and financial advisors do a thorough study of stocks or companies and recommend a stock which is good for investment. Investment done without their guidance can lead to losses because you might not have expert knowledge on the subject. Experts and financial advisors understand your risk bearing capability and accordingly develop an investment plan that suits you the best.
Not Making Diversified Portfolio
A diversified portfolio is one that comprises of stocks of many sectors. You can save yourself from incurring huge losses in the stock market by making a diversified portfolio. A diversified portfolio is relatively safer because underperformance of one sector is compensated by the outperformance of another sector. Therefore, you must avoid making a portfolio having a few stocks in the same sector. A well-diversified portfolio helps in mitigating the risk.
Taking Decisions Out of Emotions
In the stock market, a practical approach will make you more successful. If you take the decision out of emotions during the volatile phase of the market, you would end up making losses. Emotions have no place in the stock market and must be avoided.
Not Being Patient
The stock market may test your patience on various occasions. There would be times when the stock would show no movement for months and then suddenly explode. Also, there would be times when the stock price would keep falling due to unfavorable market and then recover again. In such situations, being patient is the key to success.
The above-mentioned points will help you avoid big losses in the share market. If you want to invest for long term or start intraday trading, you can open a demat account with Kotak Securities and avail hassle-free services.