Beginning investors are lured to the stock market in the hopes of generating large profits without working. People starting out make many of the same mistakes, primarily by not understanding how the stock market works.

New stock market traders chase after hot stocks, buy on margin, and sell stocks at the wrong time. Although all investors make mistakes, inexperienced investors often trade their way into large losses through lack of discipline and the desire for a quick score.

The Stock Market is a Big Auction

Many beginning investors think of the market as a game, or sports event. The language used perpetuates this tendency. Stocks are winners and traders try to hit home runs. Traders need to think of the market as one big auction with many items. Every time someone buys a stock, there is someone else who is selling.

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  Tom Bulford outlines three stockmarket signals that should keep you one step ahead of the market's movements.