Are you afraid of making money in the stock market? Do you still believe that trading in the stock market is gambling, or is it the place for only people with a high-risk appetite?

Well, some of these so-called misconceptions and skepticism about losing money have significantly dominated and diluted the overall purpose of the stock market. It has debarred potential investors from utilizing the opportunity for long-term wealth creation and earning higher returns.

Counterproductive to this, people with a strong understanding of the stock market functioning and its ability to reward with multi-bagger returns have successfully distanced themselves from such petty misconceptions. Just like only a few cricket players make it to the top of the table, people who deep-dive into the world of the stock market are the ones who make it straight to the league of ‘Successful investors and traders.’

Now, let’s ponder upon a few misconceptions and check why we should avoid them.

1. Stock Market Aligns with the Economy.

People do believe that the stock market is like the economy. Investors and traders rely extensively on economic data and conclude the stock market trajectory. By and large, the economy and stock market work parallel, but this is only sometimes the case. Markets are extremely volatile, and the slightest incident can strongly impact the stock market but not the economy. Many factors, like changes in interest rates, tax rates, natural calamities, geopolitics, policy announcements, and more, dominate the stock market. These factors might or not impact the economy. For instance, any new announcement related to a bonus, buyback, share split, or liquidation can drastically affect the stock market rather than the country’s economy.

2. Trading in the Stock market is Gambling.

In a quest to earn quick profits, trading in stock markets gets misunderstood as gambling in the stock market. In gambling, one is just playing against the odds, expecting to reach the result in their favour. Fortunately, a disciplinary approach to stock picking demarcates it from gambling. Understanding facts and figures, past performance, market trends, and profitability analysis gives traders an upper hand in making profits in the stock market.

Grab an understanding of how trading is different from gambling in this blog.

3. Invest Only in High-Yielding Stocks.

All investors and traders make their way into stock markets to make money. However, the real success lies in picking the right stocks for investment. Risk-averse investors hinge on stocks with a good dividend yield or defensive stocks. The probability of returns is dependent on some internal and external factors. Dividend or defensive stocks have a strong foothold in the market, characterized by stability but offer limited opportunity for wealth creation. Alternatively, growth stocks are relatively new to the business, characterized by high volatility but hold a high potential for capital appreciation.

To be successful in the stock market, blind selection of high-yielding stocks is dangerous, and one should avoid it. Ideally, a perfect mix of dividend and growth stocks is essential to minimize risk and generate returns.