4 Trading Tips for Beginners

4 trading tips for beginners

Jason Briscoe (Unsplash)

The COVID-19 pandemic has been a life-changing event in many respects. Government-imposed lockdown measures served to bring some industries to a standstill and caused great economic losses. Naturally, we are all looking for new ways to make money in these tough economic circumstances, and investing in stocks offer investors potentially great returns over time.  

However, there are lots of risks associated with playing the stock market, especially if you are a newbie trader.  The stock market is highly volatile, and crashes can be devastating. This is why it is so important to do thorough research before taking the plunge.  Here are a few key tips that beginners should bear in mind when they consider investing in stocks and shares:

Know Your Limitations

Bear in mind that whenever you invest in a stock or bond, there is a chance you’ll lose the money you’ve invested. As such, investors could potentially find themselves in trouble if they play an overly risky hand. As a newcomer, you should set up a budget to determine how much money you can comfortably invest without compromising on your quality of life. Ideally, you should only invest money that you can afford to lose, not funds that you may need to cover basic living expenses. 

Do Your Research

There are many different strategies traders use, so it is important that beginners do their research to establish which strategy makes sense for them. There are lots of useful tools available online that can help inform your investment decisions. 

Start Small

A good way to start your journey as a trader is to focus on low-risk stock. Your money is likely to be safer when purchasing shares in a major company than if you invested in a start-up. Alternatively, reduce risk by investing in consumer staples that are known for being less volatile. Think in terms of businesses that produce basic goods that everyone uses, such as food and cleaning products. These types of stocks tend to experience gradual yet consistent growth. 

Be Level-Headed

Remember, the stock market is volatile, and the media tends to amplify developments. You need to take market news with a pinch of salt and not let this sway your investment decisions. As a trader, you need to remain rational and not make knee-jerk decisions that you’ll regret further down the line. Letting your emotions get the better of you and affect investment choices won’t help you achieve your objectives. Find a strategy that makes sense for you and stick to it. 

People have been attracted to trading on the stock market thanks to the compelling return on investment it offers. To be a successful trader, novices need to keep the points discussed above in mind. As a basic rule of thumb, investors should not invest beyond their means. It is also wise to do your research and speak to those with more experience. Furthermore, starting small with low-risk stocks is a good way to go until you find your feet. You’ll find there is a lot to learn, and being sensible will certainly help limit losses.