How can beginners avoid losing money in stock markets?

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Everybody wants to win at the stock market but still, the majority of investors, especially beginners, end up losing their money. Investing in the stock market is not an easy task and it may get overwhelming for beginners hence they may make some wrong decisions which can cost them dearly. As beginners, it is highly essential to avoid pitfalls and invest judiciously so that you do not lose your hard-earned money.

Sometimes it may so happen that beginners expect short-term results and fail to understand that the stock market does not always provide short-term gains. A long-term approach is an excellent way to grow wealth and a short-term approach may lead to substantial losses. Knowledge of the economy, following proper stock advice, and staying focused can help beginners go a long way in the stock market.

Let us discuss a few points that can help beginners avoid losing money in stock markets:-

1. Understand the basics of the stock market

It is very essential to get the basics of investing in a stock market right. You must have a basic idea of what is BSE, NSE, Sensex, Nifty, and other related aspects of the stock market. Also, to know more about stocks, you must know about the stock market timings, who is a stockbroker, market movements, market sentiment, etc. so that you get a general idea about the market.

Sometimes beginners are so much in haste that they skip learning the basics and directly try to trade or invest. Doing this can be very dangerous and thus, beginners must spend at least a few days understanding the basics of the stock market so that their journey is successful.

2. Use Stop Loss on every trade

Most brokers allow you to place a stop-loss at the time you place the buy/sell order. The stop-loss option helps you to reduce your losses as it helps you select a price at which your position will be automatically squared off. E.g. if you are purchasing 100 shares of Company A at Rs. 300 and you expect its price to rise, you can put a stop loss at Rs. 290. In case, the price of the stock falls, your 100 shares will automatically be squared off when the share price reaches Rs. 290.

As a beginner, you need to use stop-loss on all of your trades so that you don’t incur huge losses.

3. Do not indulge in emotion-based trading

Controlling your emotions is of prime importance in the stock market. Do not let your emotions conquer you, especially when you are losing money. You must understand that stock market lows do not go on forever. You can try revisiting the records and stock market corrections to understand the markets better. History has proven that investors who have stayed the course have often recouped their losses in a few years.

4. Do not indulge in short-selling

Short-selling refers to the mechanism where you first place a sell order and then buy the same stock at a lower price. The difference in price multiplied by the number of shares you have sold will be your profit. Short-selling allows you to take advantage of a falling market.

However, as a beginner, you must not indulge in short-selling as it is a risky practice. Every trader and investor must first master the skill of buy-and-sell orders before trying their hands on sell-and-buy orders.

5. Have a solid trading plan

Not having a trading plan is one of the biggest mistakes made by most beginners. You must have a trading plan and must stick to it at all costs so that you can trade with less risk. It is a known fact that all experienced traders get into a trade with a well-defined trade plan. A trading plan helps you ascertain your entry and exit points, the amount of capital to be invested, and the maximum loss that you are willing to take. Thus, one must not abandon their trading plan and follow it at all times.

Understanding the stock market can be sometimes tough for beginners and it becomes very difficult to invest your hard-earned money in the right stocks. Thus, we at mastertrust enable you to make proper investments, backed by thorough research and knowledge.

Contact us today for the best stock advice and guidelines on online trading for beginners.