Tips on how to make money in stocks can be easy ways if you learn of this. Lots of traders and investors who are still beginners have expectations in trading that they can multiply their capital and get extraordinary profits in a short time. But the fact that often happens is the opposite, instead of multiplying the capital, the traders or novice investors even suffer losses. Then why is the fact that trader, especially traders who are beginners, experience losses more often than they benefit?
This is inseparable from the very minimal provisions they have in the world of the stock market and plus there is no mentor or someone with more experience to accompany them, so they often lose more than they gain. In addition, there are also some other things that are no less important that traders need to know if you want to know how to make money in stocks, then what do you need to know so that you can make money on the stock market?
Tips on How to Make Money in Stocks
- Avoid “Averaging Down”
Have you ever bought a stock and then the price dropped below your purchase price, and then you bought it back below assuming the price was cheap? If so, then you’ve been averaging down. What is averaging down? Averaging down is buying back a stock after the price drops from the previous buy or capital level. Most beginner traders will carry out the averaging down strategy, even though the price doesn’t necessarily increase again after you do the averaging down.
What if the price continues to fall? Of course, the losses you will experience will be even greater. You need to know that, when the price moves against the results of your analysis, falls below your purchase price, you may make something wrong in your analysis, or you may miss something so that the price reverses the opposite direction of your analysis. This is not a good ways on how to make money in stocks. Therefore it will be very dangerous if you do averaging down if the price continues to fall and you don’t know when the stock price stops falling.
- Discipline and Don’t Be Afraid of Cut Loss
Another tips on how to make money in stocks is discipline. Investors and traders also need to know when to sell their shares when the price drops below their purchase price or capital. Most investors and traders instead of limiting losses when the price falls below the purchase price, they buy back the stock by averaging down. They hope that if the stock price will still rise again and it is not uncommon for this hope not to happen, the stock price will fall sharply.
This assumption is a wrong assumption. Because with this condition you are controlled by your own emotions and ego, so the rules that should have been set at the beginning and the stop loss level that you have set become meaningless and are defeated by your own emotions and ego to get a good ways on how to make money in stocks.
- Start Small
The last thing that is not less important on how to make money in stocks that is often ignored by many traders is the trading portion of your capital. How much funds do you need to trade from your capital? Is it 10 to 20 percent of the capital? Or even 50 to 80 percent of the capital? When you first enter the market or take a position in the market, of the total capital you start with small funds first, it can be 10 percent of the capital or 20 percent of the capital. And don’t ever increase your trading portion, unless you can consistently make profits from your trading.
The philosophy of understanding this is actually very simple, if you can’t make consistent profits using 10 to 20 percent of your capital, then why should you increase your trading portion to 50 to 75 percent of your capital? Vice versa. By using a small trading portion of your capital, if in case the price reverses in line with your analysis, then you will lose a little money from your capital, vice versa, by applying this method of how to make money in stocks that you can control the risks that you will face, so that you will trade safer with controlled risks in the future.