What are the top 5 Trading misconceptions?
Top Trading misconceptions the could be costing you money.
1 “I need to investing this hot stock everyone is talking about right now!”
Time and time again people seem to rush into buying a stock that is discussed on stock forums or on social media groups because it’s the HOT stock that you have to buy now. They are discussed in a way that entices you to if you don’t buy right away you will be too late and miss out. This can cause investors to rush into buying a stock without proper research and analyses causing them to potentially miss the fact that the stock might currently be overvalued. The only reason this stock may be rising could be because of the volume of investors buying in but what you need to consider is there is most likely a large amount of investors that bought earlier looking to sell. The moment you rush to buy in the majority of early investors sell causing the buyer that rushes to buy the stock to pay at premium overvalued price.
If you are interested in learning when to buy at the right time click here
2 “Low stock price must mean a stock is cheap”
No this is wrong just because a stocks price might be lower than other companies doesn’t mean it’s cheaper. For example, If company A has a market capitation of 1 billion dollars and has 100 million shares on issue the stock will be trading at $10 and if company B has a market capitation of 10 billion with 500 million shares on issue the stock will be trading at $20 company B is worth 10 times what company A is worth despite it being double its stock price. A company’s total value is determined by its market capitation which is the share price multiplied by the number of shares a company has. However if you are looking at if a stock is undervalued or overvalued this is where ratios like price to earning comes into play.
3 “investing is to complex for a first time investor unless you have a large amount of money”
Many people seem to buy into the belief that investing is far too complex for them to do and that it’s meant for professional investors who have a large amount of money this is largely false. Nowadays you are just a few clicks away from making an investing account and investing. With simple online brokers you can easily learn what moves the stock market and practice your trading strategy that works for you without having to look at a vast amount of complicated data at first glance or start with our free course. It is also false that you need a large amount of money to start investing. You can start investing with as little as $100 and you may immediately think that you might not see any decent returns with only investing 100 but you are dead wrong find out how to magnify your returns with leverage here.
4 “When the market drops everyone loses money”
Often when the market crashes or falls there is a large amount of money lost in the stock market and many believe that when the market falls everyone loses money this is false. This is only the case for some investors, it is possible to make money in a falling market though a concept called shorting. When we purchase a share we buy it first then sell it after closing the position, when we short something we sell it first and then buy it back after closing the position. What is effectively happening is you are borrowing shares then selling them at the market price immediately then hoping to buy the stock back cheaper, closing the position and making a profit. This is done by millions of investors daily and a lot of money can be made in a falling market.
If you are interested in how to make money in a falling market click here.
5 “Investing in stocks is like gambling”
To make this as clear as possible, investing only becomes a casino if you make it into one, what i mean by this is if you pick a stock at random and do no research at all of course it is a gamble. However, what if you could increase your odds of winning at the casino by discovering information on the likely future outcome of certain events then get to bet on it beforehand? Well the casino wouldn’t let you as they ensure the odds are always in their favour. When you invest you can obtain information on a stock that can predict the performance of the company or look at ratios to determine if a stock is undervalued or overvalued then invest you have a high likelihood of your investment increase this isn’t gambling. It is very important if you are starting out to practice a strategy that works for you before you start investing with real money to find out how to do that here.