10 Common Mistakes To Avoid In The Stock Market In 2022

Are you considering investing in the stock market? This type of investment allows you to diversify your savings and hope for better returns than traditional passbooks, but the risk of capital loss must be taken into account when starting out.

Type of media, strategy, methodology. Before plunging headlong into the financial markets, there is a lot of information you need to know.

It is not uncommon to see investors make the same mistakes. 

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Not having sufficient knowledge and the right tools

To take care of your investments, the law requires professionals who have the necessary knowledge and permits. Legally, any individual can decide to trade securities on the stock exchange for his own account. 

Often, people take their first steps in the stock market encouraged by a friend or a colleague and start buying stocks they believe in or simply because they have heard of them. 

Unfortunately, the majority of the time, the results do not meet expectations. Technical analysis can greatly help small investors by allowing them to choose the best values ​​and the best times to buy or sell.

Investing for the short term, taking into account only fundamental information

Of course, fundamental financial information has significant value, but without knowledge of technical analysis, it is not easy to navigate. It’s not just company information that is moving headlines. 

Certain factors can influence the majority of stocks in a sector. For example, a strong fluctuation in the price of oil can influence the majority of stocks in the energy sector. 

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The use of technical analysis with simple and effective software allows you to follow your positions easily, as well as the values ​​which could influence your investments.

Buy downtrend stocks

The word “trend” is commonly used, but in the field of stock market investment, it has a very specific meaning. It is about the trend line. All stock charts are made up of cycles that make up trends. In fact, these are bullish corridors and bearish corridors that are formed when you draw a line joining the tops of cycles and another joining the bottoms of cycles. 

In principle, it is always riskier to buy a value that is below the downtrend line, even when the value is rising.

Trading securities that are too illiquid

Liquidity is composed of the number of trades executed and the number of shares traded. A stock that trades lightly will exhibit an erratic stock chart with frequent gaps between the price of buyers and sellers. 

These values ​​are more susceptible to manipulation. You will likely get stocks at several different prices for lack of sellers at your price. 

It is technically not recommended to trade stocks that show daily volumes below several hundred thousand shares traded.

Disregard transaction volumes

The increase and decrease in the volume of transactions are of great importance. However, these phenomena are often denigrated for lack of knowledge or tools capable of analysing them. 

It should be understood that there are several types of transactions and that they are all mixed within the volume published by the exchanges. 

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There are stock issues, transfers from one company to another (inventory movements), planned and fixed price transactions as well as all transactions originating from buyers and sellers during a normal trading session. 

The enormous volumes caused by movements of inventories, issues of shares, and warrants mix the cards.

Not taking advantage of new sectors with high potential

From time to time, new high-potential sectors appear or grow in importance, driven by major changes in society or in new technologies. Often at the very beginning, the potential of these sectors may seem low, but sometimes they grow a lot. 

The fashion for nanotechnology has not been very successful because of its too experimental stage. The fashion for diamonds has made the success of only a few companies because they are too rare, too difficult to extract, and too expensive. 

But the sector of graphite and lithium producers, driven by the race for the electric car, was and still is seen as having a lot of potential. 

Waiting too long before buying

Buying is not complicated. The first day of a new bull cycle that shows the beginning of a new uptrend is without a doubt the best place to buy. You have to learn to act at the beginning. It is necessary to act when the first stocks in the sector give a buy signal. 

Most of the time, people who wait too long before buying make the mistake of letting their emotions guide them. They see multiple titles going up for multiple days and are afraid of missing the boat instead of waiting and acting at the start of the next move.

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Not securing positions that work

Securing a position means selling part of the shares to lower the cost price and increase the room for manoeuvre to minimise the risk of losses and maximise profits. 

The majority of people rarely sell and when they do it is often too late or out of spite. 

These days, it costs very little to trade. 

Fall in love with a company and never sell

When people go public, they tend to choose the most well-known and popular companies rather than picking up-and-coming companies or sectors. 

Some have accumulated small fortunes, but unfortunately, the situation has changed a lot. In the stock market, you have to keep a cool head.

Not having an exit strategy to avoid losses and maximise profits

When you decide to buy a security, you have to have a plan. Buying should be done at the right time with an upside objective to take profit to secure the position and a downside exit strategy to limit losses. 

It is of course important to acquire knowledge and to have good research and analysis tools. But it’s even more important to have a game plan and stick to it.

Saurabh Chaudhary
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