Many people hear about the stock market for the first time and assume that stocks are a magical way to turn money into more money. While this may be true for some people, for a vast majority of others, it is just a way to turn money into no money. This is not because investing is the same as gambling, but rather investing without knowing what you are doing is the same as gambling.
Many investors lose money every year because they don’t understand basic investing principles. The sad part is, it doesn’t have to be that way. Some people are able to make profits year after year by employing smart, safe investing techniques and sticking to it. Here are four things you should know before buying a single share of stock:
Never invest short-term
Many new investors make the mistake of assuming that they can pull out of the stock market at any time. While this is technically true, it is not totally realistic. If you put money into stocks with the plan to sell in a few weeks, or even months, you may find that at the point where you would like to sell your shares, the stock has lost half of its value. This means you could technically pull out, but you will lose half your investment by doing so.
The key to avoid this is to invest for the long-term. Never use money that you will need to pull out in the next few years. You can avoid incredibly stressful and financially devastating results by doing so.
Stock movements are not random
Many people assume that the prices of individual stocks change on a day-to-day basis completely randomly. This is not the case. In fact, there are many patterns to look for when looking at the price of a stock. Often you will see a stock price follow the same pattern for months, or even years. This can help you identify when it is a good time to purchase shares versus when it is a bad time to purchase shares.
This is called technical analysis and investors do it every single day. Before investing, you should read at least a few books about technical analysis to make sure you understand what to look for when you are looking at stock prices.
Many people just getting started in stocks feel an unnecessary sense of urgency. They seem to feel as if they are missing out on something and if they don’t get in on a certain company’s stock now, they will forever miss their opportunity. This is far from true. There are opportunities on the stock market every single day. Don’t even start looking for these opportunities until you know exactly what you are looking for and how to tell if you are getting a good deal or not.
Don’t rush into buying stocks ever. This will inevitably lead to heartache and lost money. If you have any misgivings about the purchase, pull out and wait until something you feel great about comes along.
Try virtual trading
The best way to learn the stock market is through virtual stock exchange. There are a lot of sites that offer virtual trading and you can use those to be able to play with fake money and decide if you have what it takes to really make money on the stock market. Once you have a good system with fake money that seems to work every time, you can start putting a small amount of real money into the stock market.
Above all, play it safe. The stock market is real money. Don’t turn it into gambling. Do your research, take courses, talk to experts, and only then should your hard-earned money be put into markets.