Are you a stock market beginner? Keep reading because in this article I am going to tell you about the 5 biggest mistakes that new investors make.
If you are a stock market beginner watch out for the following.
1. Buying low priced stocks - many new investors choose to buy cheap stocks, the problem is that low-priced stocks are generally missing a key ingredient of past stock market winners: institutional sponsorship. A stock can't make big gains without the buying power of mutual funds, banks, insurance companies and other deep pocketed investors fueling their price moves. Institutional investors account for about 70% of the trading volume everyday, so it's a good idea to fish in the same pond as they do. Remember - stocks are cheap for a reason.
2. Avoiding stocks with high P/E ratios - most investment pros will tell you to focus on stocks with a low P/E ratio. While it's true that stocks with low ratios can go higher, investors often misuse this valuation metric. Market leaders often trade at a higher premium than their peers, this is because they're expanding their market share faster because of outstanding earnings and sales growth prospects. You should select stocks that have the traits of past stock market winners: leading price performance in their industry, top notch earnings and sales growth.
3. Letting small losses turn into big ones - cut your losses in any stock at 7% or 8% and you'll never get hit with a big loss. Use this as your insurance policy, if you buy stocks they should never fall 7-8% below your purchase price. Small losses can be easily overcome; it's the big ones that do the most damage. If you take a 50% loss on a stock you will need a 100% rise to get back to break even. But if you cut your losses at 7-8% a single 25% gain can wipe out three 7-8% losses.
4. Averaging down - averaging down means you're buying stock as the price falls in the hopes of getting a bargain. This is also known as throwing good money after bad and is a risky proposition.
5. Buying stocks in a down market - some investors don't pay attention to the current state of the market when they buy stocks, and this is bad idea. The goal is to buy stocks when the major indexes are showing signs of accumulation and sell when they're showing signs of distribution. Three fourths of all stocks follow the market's trend so watch it each day and don't go against the trend.
If you are a stock market beginner these are the five biggest mistakes that you can make, study this article carefully and make sure that you don't become a victim to them.
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Article Source: [http://EzineArticles.com/?Are-You-a-Stock-Market-Beginner?-Here-Are-the-Five-Biggest-Mistakes-New-Investors-Make&id=4005471] Are You a Stock Market Beginner? Here Are the Five Biggest Mistakes New Investors Make
I have a web site where I give advise on penny stocks and stocks under five dollars. I have many years of experience with these type of stocks. Lets take a moment to talk about low price stocks not classic penny stocks or stocks under one dollar the term most people most often think of when the word penny stock is used. The single most important thing that investors must realize about low price stocks or stocks under five dollars is this’ their are companies of really decent quality trading under five dollars’ but for every one company trading under five dollars that is of decent quality their are maybe ten of poor quality. So the really big difference between those investors that are tremendously successful when it comes to investing in low price stocks and those investors that lose enormous amounts of money investing in stocks under five dollars’ is having a great deal of knowledge and experience when it comes to low price stocks’ or having a total lack of knowledge and experience when it comes to low price stocks. Finding high quality stocks under five dollars requires a lot more research than finding a decent stock above ten dollars.
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