Since the end of the year 2017, cryptocurrency has been steadily gaining popularity with Filipinos.
Due to that, curious and daring minds want to take the plunge and see where stock trading can take them.
Investing in stocks is like a thrilling rollercoaster ride. It can be a fun and fantastic experience, but at the same time, it can blow your mind if you let your guard down.
Being in the world of stock trading means bracing yourself for vulnerability and exposure. The experience can be financially fulfilling but emotionally, it may not be so.
The risk of losing money happens daily in stock trading since the share prices fluctuate without any warnings or precautions. The investor’s role is to be mindful and effectively manage the risk so that the flow of the market will be on the user’s side.
Here are four things newbie investors do that make them lose the money they’ve laid on the line:
1. Letting Lady Luck Play
Typically, first-time investors tend to let their emotions take control and decide when and what to buy and sell. The experienced ones don’t. They will look first and analyze the fundamentals of the stock market before taking the leap.
Cristina S. Ulang, research head at First Metro Investment Corp said that “Investing in the stock market is not for everyone. It is a risky investment and its volatility can give an investor sleepless nights. Stock prices can go up or down in an instant and by a hefty amount”.
Fear and greed of the investors influence the escalating and plummeting of the stock prices. This happens instantaneously and may result in inevitable losses.
First-timers tend to get carried away by the movement of the stock prices. By doing this, they place themselves in a more precarious situation.
Entry prices like this are more susceptible to losses than making a profit, and the experienced investors are aware of this fact.
Pros make their move after they thoroughly assess the fundamentals. This will be their guide to the right company. You will be able to know the essentials and will gradually be able to make a safe prediction of when prices will go up and down.
Their stock price will be a better bet since it is supported by reliable data and effective analysis. So even when the price fluctuates, you can still hold on to it with confidence that it will gradually bounce back.
2. Not Studying More About It
There is a lot of hype on the internet about people getting rich overnight just by earning money from stock trading. Because of this, many first-time investors expect to succeed in the same way. So they end up carelessly investing, and may end up with empty pockets.
One example was all of the people who were jumping aboard the cryptocurrency train without thinking.
CoinDesk recorded that the price of Bitcoin unexpectedly rose from $6,750.17 to $19,086.64 between early November to its December peak. It was a 182.8% leap that made Filipino investors want to be part of the cryptocurrency community.
Due to this, Bitcoin startups are on the rise in the Philippines. But high volatility and demand are clear. In this kind of setting, critical risks and mistakes are likely to happen.
Moving back to stock trading, most first-time investors don’t have financial and trading experience.
However, a solid background in stock investing isn’t the driving factor to succeed. It is instead a thorough understanding and willingness to learn.
First up, you need to know the two types of analysis: fundamental and technical.
Fundamental analysis talks about the economic and geopolitical situations that influence the finance of the company and the stock market.
On the other hand, technical analysis pertains to how market psychology affects the movement of the trends by observing the historical charts.
You don’t have to lose something first before you learn something valuable. Take a step back and inspect first. Study and assess yourself if it would be a good investment for you.
We think that this quote from Warren Buffett is fitting for the world of stock trading: “Be fearful when others are greedy and greedy when others are fearful.”
3. Don’t Know When To Cut Losses
It is common for an investor to be afraid to lose money.
However, it is important to know and do something about it when you risk losing more than you’ve already lost.
For instance, when the stock falls by about 10%, it is still possible to recover from it if you do decide to cut your losses. You’ll only then need to recover the 10% loss from your other trades.
But there are quite a lot of investors that decide to stick with it. Why? Because of fear and emotional attachment.
They will decide to wait it out and hope that the price movement will change its course. This results in an increased risk that will just lead to a bigger loss.
Timing doesn’t matter in stock trading. In fact, April Lee-Tan, COL Financial Group Inc. Head of Research, said that “timing is not the key to the stock market because it’s hard to accomplish”.
“An investor would buy shares when it reaches rock bottom, and they will sell when it reaches an all-time high. But then again, that is tough. What investors can do is to invest in the right stocks which are profitable and have good management.”
The stock market circles around the emotional factors of the investors. Due to that, the ups and downs of prices are erratic.
First-timers tend to get swept away by this occurrence.
There is no “right” time in stock trading. Be cautious not to overtrade.
4. Didn’t Manage To Reap Profits From Good Trades
It’s normal to feel good when your stock is going your way.
It is fulfilling to see your portfolio doing well and the probable profits that you may gain.
That is when greed usually rears its ugly head. You must remember that it doesn’t count as actual profit yet as long as you haven’t sold your stocks.
It is a different story when the stock flow reverses its course. Your possible profit will be, in turn, your probable loss.
Because of that, it is crucial for an investor to know how much you want to make and when you have to take your profits or losses.
Locking in your profits may do the trick when you want to sell your stocks. When it is on uptrend, you have the option to sell it slowly.
This choice may be favorable to you since its share price rises until your stocks are completely sold.
Many investors, particularly first-timers, think that waiting and selling it at the highest attainable price is the best course of action to make more profit.
However, this is a mistake. When you do this, you can’t sell it since you never catch it. Make sure that you sell your stock when you feel good about it.
Henry Ong, a reputable financial advisor, gives a sweet tip that sums it up: “Sell while it feels good.”
This article was written and contributed by Kella Pacquaio. She likes reading books, ink-drawing, and taking long walks. As an Electrical Engineering student, she writes as a hobby.
Featured Image Credit: Zinser Times