There are many different investing strategies that someone can apply to picking stocks. Some investors might opt for low-risk dividend stocks while others might look for investments that have significant growth opportunities. However, one of thebiggest mistakes that an investor can make is assuming that they know the direction that the market or a particular stock is heading.
Many different variables can impact a stock’s price that are external to the company itself and that it has no control over. Buying stocks that have declined could seem like bargains at the time, but investors need to remember that the share price can always go lower. A stock trading at a 52-week low could continue to decline, and believing the share price is going to rise eventually is an easy way to lose money.
This is why the safest tool an investor has is a stop loss. By making sure you put one in when you buy an investment, particularly for a stock that has fallen in value, could save you lots of stress and money. Putting in a stop loss takes the emotional aspect out of the investment and prevents you from rationalizing why you should keep a stock that is continuing to decline.
Overconfidence is dangerous when it comes to investing and making disciplined decisions is key to maximizing your returns. After all, just because you’re sure the stock is due to rise in price doesn’t mean it will. You may have logical and sound reasons for expecting the share price to increase, but the stock market might not necessarily agree.