Stock Market Forecast - Trading Psychology

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When the risk free investments like CDs and money market funds are receiving low percentage (say < 3%), then often people want to switch their investment strategy since they feel the money is sitting idle and does not yield much.,

In this case, retail investors consider playing with stock market with the intention of making money at higher rate, lets say 15 to 20% per year. The retail investor will be focusing on the recent past and will project the future based on that. However the past performance for a stock does not guarantee the future. Their investment would be good but it mainly focus on how to make more money?

This is the common problem with retail investors. They have start think in a direction that how not to lose existing money more than how to make more money. It clealy ties into risk management techniques. When you start investing, develop a mindset that even your investment does not yield anything great, but it will not lose its value that is below your risk tolerance level.

Stock prices can not stay in a flat line either it can go up or down. Hence always your investments has some risk associated with the market.

Common mistakes made by retail investors are,

1. Investing all cash in hand with out having any buffer.

2. Investing money completely into one stock or one sector.

3. Investing money into a stock since it did hit its annual low.

4. Investing money into a stock since they made profit earlier.

5. Investing money into a stock since their friends or collegues are doing the same.

6. Investing money into a stock with out having any idea about their balance sheet.

7. Investing money into a stock because the company name is very popular.

8. Trading on margin by paying high margin interest.

9. Closing position when they make small profits

10. Closing position when they are in the need of money.