Top 5 Stock Tips for Beginners

Do you always want to run away from the idea of stock trading because you just do not understand anything about it? If your answer is ‘yes’ then it’s time to reconsider your notions. Trading in the stock market can be both fun and of much interest, provided you know how the market works.

It might be worth mentioning that many people have been lucky enough to earn millions in the stock market overnight while some have lost fortunes. So if you want to try your hand at stocks then better take some preparation.  Here are a few tips which would help you to invest in stocks in a sensible manner:

1) Buying and selling of stocks frequently-a major mistake

Some people, mostly beginners, trade their securities rather too often. It might be due to the tips they hear on TV or the advices that are bombarded by the friends. These things can make you feel that you need to sell your current holdings and buy what’s recommended. However, this doesn’t work out. You only manage to make your broker rich in the process because he rakes in trading fees. If you buy and sell frequently, then the benefit will be negligible compared to the losses. Being greedy does not pay in stocks. Remember what Jim Cramer says: “bulls make money, bears make money, hogs get slaughtered”. This habit is not tax friendly either. You would often need to pay short term capital gain tax instead of long term long term capital gain tax which is lower.

Also Read: Sold the Shares; Do I have to Pay Tax?

2) Do not panic

Stock market is essentially for investors who like to experiment with their money. Here, Fear of losing may sink your ship. Of course, you ought to be prudent and cautious while investing in stocks but it is very important to hold your nerve when the market goes down. To win in the long run you should sell only when it yields you proper money. People who are driven by panic are prone to buying high and selling low.

Also Read: How to decide when to sell Shares?

3) Understanding stock market strategies

You should be aware of the basic investment strategies before you put your right foot forward. Warren Buffet believes that it is wise to invest in stocks that are undervalued by the market. He rightly points out that if you choose stocks with lower potential but higher price, then it might make you a winner in the long run. This kind of stocks usually grows faster and earns more than people expect. Technical analysis is another strategy that is widely used. Here, charts are used to predict the movement of stocks.  It should be noted that this technique works best for short term trade rather than long term investments.

Also Read: Don’t let the Sensex Guide Your Senses!

4) Choose your broker carefully

Finding out the suitable broker for you can make a difference. While most people settle with brokers that their friends or relatives use, it might be useful to get yourself the best broker by doing some research. You should make sure that your broker has certain qualities. Firstly, the broker should allow you to place trades online. This is important because placing a trade online saves you quite a few bucks compared to doing the same in person. Secondly, don’t hire a broker who charges high fees. More often than not, their advices are not useful.   Moreover, if the fees are quite high then it will eat your profits.  Finally, if you are a novice then choose a beginner friendly broker. Some brokers are geared more towards veteran investors and their intricate methods may confuse you.

Also Read: Some facts your Broker does not tell you!!!

5) Beware of stock market scams

Stock market has its share of shady people but if you are careful then you are safe enough. Stay clear of offers which promise more than 50% return. Likewise, a guaranteed return is a doubtful case. Only a bank CD or Treasury bond can assure you of a guaranteed return.  Scam emails informing you about “a golden investment opportunity”, are of course scams.  Surprisingly, many people fall for it. Also remember that whenever someone tries too hard to sell you something, his motives are perhaps questionable.

Also Read: 4 Golden Rules of Equity Investing

Investing in stocks is not as difficult as it seems. If you have some basic ideas then stocks can be a very lucrative proposition. So remember the above points and give stocks a try.

This post is submitted by our Guest Blogger, David Brown. David is the founder of fileyourbankruptcy.org, where he writes articles on Personal Finance. He is also associated with monsterhols.com, quicklyprofit.com, darngoodblogging.com, debtincome.com and allfinancialforms.com.

Tagged as: How To, Making Money in the Stock Market, Money Management, Personal Finance, Smart Investor, Stocks