It is a common saying in the stock market that trading is 90% mindset and 10% skills. And it is true. The psychology of trading is crucial, and fear is a prominent sentiment that stock traders face – many hesitate initially to trade in the stock market. There can be a fear of financial loss and an underperforming market. Even experienced traders can sometimes become scared due to bad decisions influenced by emotions. Fear often leads traders to commit mistakes. Hence, traders need to overcome this sentiment and stay objective.
Here are the ways to overcome the fear of trading. Open your Demat account and follow these steps to overcome your fear of trading:
1. Educate Yourself
Educate yourself on handling the markets. Knowledge is an asset for stock traders. Gather how the market and stock investments work. It will help reduce anxiety and get you more familiar with the market, economy, industries, businesses, and government influences. Many stockbrokers offer financial knowledge through their dedicated blogs on stock investing. You can select a discount broker that provides a 100% digital Demat account opening process.
You can learn about fundamental analysis that helps to evaluate securities and judge their intrinsic value. It involves scrutinising the company’s financial strength, management, earnings, assets and liabilities. If you invest in a company with strong fundamentals, you can expect an appreciation in its share value over long term. These companies can survive in adverse economic situations, like a recession or a slowdown.
Technical analysis is associated with market trends and it aid in predicting a security’s price movement basis the past price pattern. It helps you decide the buy and sell price of stocks.
2. Start Small and Let it Grow
Beginners can start with a small amount that they can afford to lose. When you see the small amounts grow, you will be more comfortable increasing the investments. Compounding returns that can beat inflation over the period is the primary focus of investing. Keep contributing to your investment portfolio. You can start investing in smaller quantities of shares using a demat account. As an investor, you must know ‘What is demat account’. It is a mandatory account that you need to open to start trading.
3. Keep Big Picture in View
Assess your financial situation, decide how much you can invest, and stay invested to meet your financial goals.
4. Have a Trading or Investment Strategy
When you have an investing plan/strategy, it becomes easier to invest. If you understand about the economic factors and make informed decision without getting affected by emotions, you can work towards making decent returns on your investments. Stick to your trading plan to meet your financial goals.
5. Find an investment that You Understand
You must understand the investment products where you are investing, as they work differently and can impact the returns.
– Equities: These are the shares of a company open to investment on the stock exchanges. You can invest directly in the shares of a company in the primary market through initial public offerings (IPOs) or trade them on stock exchanges in the secondary market. Individuals should consider the upside or downside of a company before investing in shares.
– Mutual funds: If you want to invest small, you can opt for mutual funds and make periodic investments. These are professionally managed funds that invest pooled money from numerous investors and invest in a diverse mix of securities based on the investors’ financial goals. These are considered less risky than direct equities but involve a cost.
– Bonds: When investors look for a regular income and risk is a concern, they choose bonds issued by governments, corporations, or municipalities. Generally, these are long-term investments. These are considered less risky than equities and mutual funds.
Experts suggest investing in a business and not stocks. You should invest in a business or industry that you understand. Ensure that you know the business model of the company before you invest.
6. Give up on controlling the Outcome
Where individuals do not have control, they experience fear. You need to give up on controlling the outcome. It is impossible to get complete control of trading outcomes as the stock market is volatile and unpredictable, which cannot guarantee a positive outcome for each trade. Stock returns are about a risk-reward ratio.
Thus, stock trading can be scary if one doesn’t know the product and price dynamics. You need to be confident and immune to emotional influences. Be as far away from the noise as possible of others and keep learning to increase your stock market knowledge and reduce your fear of trading. Once you gain confidence in yourself, you will be able to take more chances and risks in the stock market.
Investments in securities markets are subject to market risks, read all the related documents carefully before investing.