In the world of stock investing, experience is often what separates the winners from the losers. Veteran traders have learned lessons that help them avoid stock market pitfalls. Rookie traders haven’t.
But rookie traders don’t need to learn the hard way. By investing time in learning the essentials of stock trading for beginners, traders can quickly learn the basics required to build a strong trading foundation.
“There is no reason for today’s beginner investors to fly blind and risk big losses,” says Fabio Ruggieri, CEO and founder of MenthorQ. “Education is more accessible than ever. And online trading tools empower anyone to trade with the expertise of a professional.”
Ruggeri has worked closely with the largest banks, hedge funds, and asset managers in Europe and America, developing top-tier skills in finance, investment strategies, alternative data, and fintech applications. He founded MenthorQ to level the playing field in the trading space by giving retail traders a platform they could use to compete against institutional investors in the quantitative trading arena.
As Ruggieri points out, investing for beginners doesn’t need to be a solo project. Resources are readily available for those who want to learn the basics on how to buy and sell stocks. Understanding the following five rookie mistakes that commonly crush new traders is a great place to start your trading education.
Beginner Mistake 1: Investing in stocks without a plan
The most successful stock market trading is strategic trading, but many rookie traders jump in without a strategy. They get a hot tip from a broker or learn about a friend who has made some big money on a particular investment, and start trading.
Veteran traders, however, know that long-term success requires structure and discipline. A well-crafted strategy puts goals in place and keeps trading activity focused on them. It helps investors to build a portfolio of stocks that can work together with satisfying synergy.
“A trading strategy provides the blueprint the investor follows as they buy or sell stocks to build their portfolio,” Ruggeri explains. “It establishes their goals, risk tolerance, entry and exit criteria, and other key components that help them identify the right stocks for them.”
Once investment strategies are established, investors must stick to them. Market volatility can often lead to investment losses, which can tempt an investor to jettison their strategy. However, those who want long-term success must believe in their strategy and stick to it.
Beginner Mistake 2: Getting emotional about the stock market
Investors often ditch their strategies when they get emotional. A rapid rise in a stock price can trigger greed, driving them to buy stocks that don’t make sense for their strategy. Or a bull market can make them ignore the general risks of investing.
Those who want to invest in stocks and see a solid return must develop emotional discipline. They must know when emotions influence their thinking and silence the thoughts that challenge sound investment strategies.
Beginner Mistake 3: Failing to cut losses when investments sour
“‘Cut your losses short and let your profits run’ is a classic rule of thumb in the trading world,” Ruggeri explains. “It’s advice that is especially helpful for beginning traders who can be reluctant to sell their stock for a loss, despite the message being sent by market events.”
Rookie traders can avoid this misstep by deciding beforehand when to sell each stock. To ensure emotions don’t short-circuit decisions, traders use stop-loss orders to automatically sell at a predetermined price.
Beginner Mistake 4: Ignoring the risks of investing
Stock market investing involves risks. Consequently, traders must learn to identify their risk tolerance early on and build their strategy around it. Common mistakes rookies make include risking too much of their trading capital on a single stock and failing to consider the risk-reward ratio when evaluating trading opportunities.
“Taking on excessive leverage is something rookie traders can do that dramatically increases their risks,” Ruggeri warns. “While leverage can be used to amplify profits, it also has the potential to magnify losses.”
Beginner Mistake 5: Buying stocks without research
Conducting research is a critical aspect of investing. Social media tips may provide valuable intel, but they should never be the only factor considered before buying a stock.
“Data will always provide the best insights on what you can expect from a stock,” Ruggeri shares. “Tapping into the market analysis tools available with many online trading accounts allows you to simplify the market and get the insights needed to make actionable decisions.”
Bonus Tip: Online brokerage accounts can be a huge help for beginner investors
Rookie investors looking to develop their trading skills should begin by establishing an online brokerage account. Education tools are among the many features online brokers provide. Platform users can find beginner guides covering a wide range of trading topics, from how to make your first trade or diversify your portfolio to the value of market indexes and mutual funds.
Stock trading can be rewarding and gratifying, provided the proper steps are taken. For rookie traders, that means kicking off your journey with research, a healthy attitude toward risk, and a commitment to stick to your strategy.
