There’s no perfect recipe for consistently beating the stock market. If there were, every amateur trader would be a millionaire in no time.
But while there may not be a clearly defined approach that guarantees every trade will be a winner, there are certainly some common habits among the most successful investors and traders. Here are 10.
- Always have a plan. Trading will absolutely not always go according to plan. But entering a position without a plan is a recipe for disaster.
- Be consistent. The only way to get rich quick in the market is to take unnecessarily large risks and get lucky — the same approach you’d take at a casino. To generate reliable long-term returns, start young and consistently add to your portfolio on a weekly, monthly or annual basis.
- Be disciplined. Whether you have a long-term investing plan for retirement or a short-term day trading plan to pay the bills, you must stick to the plan unless you have a good reason not to. There are plenty of different trading and investing strategies that work, but jumping from one strategy to another is not the way to go.
- Don’t be lazy. There’s no substitute for hard work and due diligence. Relying on one source of information or one method of analysis is not going to cut it in the long-term, and the best traders always make sure they look at any stock they are trading from all angles before they ever take a position.
- Set realistic expectations. The S&P 500 has historically generated an average annual return of between 8% and 15%. Only a handful of some of the most successful investors in history have ever significantly exceeded those returns over a period of 10 or more years.
- Add to your investments over time. A large principal investment in your portfolio is a great start. However, long-term investors should be adding to that principal any chance they get to put their extra cash to work for them on the market.
- Diversify. Diversification simultaneously helps ensure you don’t miss out on the next winning trend on Wall Street and also makes sure one bad investment doesn’t weigh too heavily on your overall returns.
- Be prepared. Opportunities can come and go in the blink of an eye in the stock market. The most successful investors do the work ahead of time to know just what trades to make as soon as the opportunities present themselves.
- Don’t be emotional. Investing off of your emotions will likely have you consistently buying stocks when they are near a top and selling them when they are near a bottom. The best investment decisions are made using knowledge, reason, logic and critical thinking, not feelings.
- Be careful who you listen to. Most people are bad at trading and they are ashamed to admit it. For every person who posts a 10-bagger trade on Twitter, there are most certainly another 10 trades that were huge losers that you’ll never hear a peep about. Most people, especially anonymous online posters, have their own best interests in mind, not yours.
© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.