Some say that buying and selling shares represents the ultimate form of gambling. An association which, when you think about it, makes perfect sense. Every time you make an investment in shares with the intention of making money, you’re gambling on an unknown outcome.
Just as is the case with all types of betting, it’s a case of making decisions in accordance with hard research, your own intuition and the balance between risk and reward. For some, getting into the stock market turns out to be the most rewarding and lucrative venture imaginable. For others, it delivers very little or disappoints. Again, just as is the case with all types of gambling, trading on the stock market really isn’t for everyone.
Still, if you’re willing to apply yourself and have disposable income you’re happy to risk, buying and selling shares can be incredibly enjoyable. Not to mention, potentially profitable if you get it right. Nevertheless, you’ll have to accept that as a beginner, diving in at the deep end right away really isn’t the way to go.
Tips for Stock Market Investing
The first thing to understand about the stock market is that it’s by no means an easy-street approach to getting rich. If you approach the stock market as a sure-fire bet, you’re setting yourself up for a rough ride.
As would be the case when betting on a sporting event of any kind, you need to accept that there is no such thing as a 100% guaranteed outcome. Hence, any money you put on the line needs to be money you can afford to lose.
Other than this, there are certain tips and helpful guidelines to follow throughout those early weeks and months in particular. If you’re serious about making a success of your stock market trading, you’d be wise to proceed in accordance with the following:
1. Establish Long-Term Goals
Right off the bat, you need to carefully consider why it is you’re getting into trading in the first place. Are you saving up for one specific luxury purchase? Do you have a financial target you intend to reach? Are you planning to go pro, or simply trade casually on a part-time basis? Exactly what you expect to get out of your trading activities? Unless you establish goals as early as possible, you stand no chance whatsoever of achieving them. By planning ahead, you’ll be able to determine how much capital you’re going to need to achieve your objectives and ultimately create a roadmap for your success. Otherwise, you’re effectively on a journey with no destination.
2. Establish Your Risk Tolerance
This basically means considering the extent to which you are willing and able to put your money on the line. Whether planning to trade on a casual basis or full-time, you need to think carefully about how much you can afford to invest…and potentially lose. For example, if you’ve £2,000 lying around that hasn’t been earmarked for anything of importance, this could be the budget you use to invest. If you then go and wipe out this £2,000 in a week, you’re pretty much stuck. Hence, the preferred approach could be to invest in smaller amounts – £200 here, £200 there and so on. If your total available budget is £2,000, it makes no sense to risk the whole £2,000 on a single investment. Irrespective of how attractive it may appear, there are no guarantees.
3. Control Your Emotions
Every decision you make when trading should be based on nothing but information, education and evidence. Or to put it another way, you need to keep your emotions out of the equation. There are various emotions that can adversely affect trading decisions – excessive confidence and optimism, disappointment, aggression, depression, anger, desperation, regret and so on. The problem being that in all instances, they stand to significantly dilute the logic and effectiveness of the decisions you make. When emotions begin to take hold, the time has come to walk away and give yourself time to cool off.
4. Cover the Basics First
By way of basics, we mean getting to grips with things like essential stock market terminology and the mechanics of trading. These days, it’s as simple as signing up with a decent online platform and following the tutorials provided. Working with a broker means handing most responsibility to a third party, but it’s still worth building at least a basic knowledge of how the whole thing works. Carry out a decent amount of research and you’ll find it far easier to make sensible and informed decisions.
5. Diversify Your Investments
This refers back to the point raised earlier, regarding the inadvisable option of the ‘all eggs in one basket’ approach. Diversification of investments basically means spreading whatever capital you have across a variety of investment opportunities. This way, you won’t be looking at disaster if one or two of them fail to deliver. The more varied your portfolio, the more likely it is (statistically) that at least some of your investments will pay off. If you lack the knowledge and experience necessary to decide where and how to hedge your bets, you could benefit from expert brokerage.
6. Have Realistic Expectations
Last but not least, the likelihood of starting out as a trader and becoming rich overnight is practically zero. In fact, it’s unrealistic to expect to be propelled into a new tax bracket anytime soon. It’s important to have realistic expectations, so as to not set yourself up for disappointment. Establish realistic goals, think about how much you can afford to put on the line and consider what represents ‘success’ or otherwise to you. If the goal is to become a millionaire, it could happen – it just isn’t going to happen as quickly as you might like!