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Pointers for Stock Trading Newbies

In our search for success, we usually overlook the most powerful tools we have: time and the wonders of compounding interest. Consistent investments, doing away with unnecessary financial risk, and getting your cash to work for years or even decades is a surefire way of gathering substantial assets.

Below are tips that you can follow as a newbie stock market investor:

1. Set your long-term goals.
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What are your reasons for investing in the stock market? How soon will you need your money back – in six months, ten years, or longer? What are you saving for? Are you planning to buy a house, preparing for retirement or building an estate for your children when you’re gone? If you need your investment returned in a few years, the stock market, with its volatility, may not be for you.
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2. Know what level of risk you can tolerate.

Your risk tolerance is simply the highest level of risk that you are comfortable with. In the context of investing, risk tolerance will let you steer clear of those investments that are likely to increase your anxiety. It is generally smart not to have an asset that keeps you awake at night. Anxiety promotes fear which then sparks emotional reactions (rather than logical reactions). Emotions do not belong in investing.

3. Rein in your emotions.

Why are emotions dangerous in investing? Because they prevent you from being logical in your decisions. Before purchasing a stock, you need a good reason behind it, as well as an expectation of what the price will do, given that the reason is legitimate. At the same time, you need to set the point at which your holdings will be liquidated. Before buying the security, create an exit strategy, in short, and the implement execute that strategy with zero emotion.

4. First of all, the basics.

Prior to making your first investment, be familiar with the basics of the stock market and the individual securities the market is composed of. Study, for example, financial metrics and definitions, common methods of choosing stocks, types of stock market orders, and the rest. Note that knowledge is tied to risk tolerance. If you’re not aware of what you’re doing, that’s when risk comes in.

5. Expand your investments.

The most popular way of managing risk is diversifying your exposure. As the saying goes, “Don’t put all your eggs in one basket.” Cautious investors own stocks of various companies in various industries, and sometimes even in various countries, expecting that one bad event will not affect everything, or will at least affect them to different degrees.

6. Do not use leverage.

To use leverage means to use borrowed cash in order to apply your stock market strategy. In a margin account, you may be offered loans by banks and brokerage firms to buy stocks. It sounds attractive when the stock is going up, but look at the other side: you have a loss, plus the cost of interest. As a tool, leverage is neither good or bad, but it must only be used by those who are experienced and confident in decision-making.