Trading is 90% mindset and 10% skills. However, many traders and investors lack both skills and patience. Picture saying 90% mindset, 10% skills.
There are a few common mistakes that the majority of new traders make and lose out money. But, the good news is that those mistakes can be rectified through awareness and can be converted into strength as well. Let us have a look into such common mistakes:
1. Lack Of Proper Knowledge Of the Stock Market.
Most of the new traders enter into stock market trading with little or no knowledge of Fundamental And Technical Analysis of stocks. This is the first reason why the majority of Stock Market Traders fail to walk away with profits.
“To swim with the sharks in an ocean, the best way is to learn from them. Or else the sharks can eat you away.”
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Letting emotions rule the trade is another big major reason behind the big losses of traders and investors. A popular axiom that says fear and greed rule the stock market is true. Traders ruled by emotions take impulsive decisions by selling their holdings in panic. The result appears as a negative return in their stock portfolio. Patient investors and traders simply benefit due to the irrational decisions of impatient traders.
Markets function with a high degree of volatility. Gaining control over impulsive decisions is far more important than learning Technical and Fundamental Analysis of stocks.
- Have realistic expectations with regard to timeline and stock.
- Adhere to the formulated time-tested strategy for stop-loss and targets.
However strong a portfolio might be, it can never blow up exponentially overnight. A slow, steady, and consistent approach to a stock portfolio yields greater results in the long run.
3. Not Formulating A Time-Tested Strategy:
Trading without a strategy is like cooking without knowing a recipe. Formulating a stock market strategy based on your financial goals, risk appetite, timeline, etc. is a perfect recipe for success in the stock markets.
One should never copy a famous strategy. But can take inspiration from that strategy and can customize it based on their needs. A strategy is said to be great if it has an entry plan, exit strategy, good risk-reward ratio, etc.
4. Focussing only on the Short-term:
The perception of trading in equity markets to get steep profits in a short period of time makes traders blindly invest in stocks that might be illiquid, and have no proper fundamentals. This might lead to the creation of a disastrous stock portfolio that ends up in huge losses.
Having a disciplined approach with the ability to look beyond short-term volatilities and concerns is a must for long-term growth potential in markets.
Road Ahead: “Cannot think of investing in some stocks for the next 10-12 years?”
Then, never trade even for 10 minutes on such stocks – A famous quote by legendary investor Mr.Warren Buffett, wherein he meant to select stocks with very strong fundamentals and high volumes for trading. Doing a fundamental analysis of stocks before taking a trade is a must.
5. Additional Common Mistakes:
- Invest the money that can be spared, so that trading spares you.
- Love the returns, not the company. If a stock that’s loved/invested in is not doing well, one must ensure at least rebalancing the stock.
- Diversification is the key to minimizing losses and maximizing profits.
- Solely investing based on tips (be it tips from experts or channels etc.) leads to a bleeding portfolio. This is because people are distinctive in nature. Tips are never aligned with people’s goals, persona, risk tolerance, etc.
- New traders time the market which is a big “NO”.
- Going against a trend of the same timeframe. Never short-sell in an uptrend and go long (buy) in a downtrend.
- When investing based on Stock Technical Analysis, never trade on stocks that get locked in upper or lower circuits.
- Never use the chunk of that portfolio allocated for retirement, emergency fund, etc. for trading.
How To Avoid Trading/Investing Mistakes During Stock Market Technical Analysis
1. Journal Your Trades:
Journaling trades helps in keeping emotions under control. Every time a trade is taken, jotting them down is vital. This helps in two ways:
- Knowing the mistakes committed in the implementation of the strategy. This journal paves the way for rectifying it and fine-tuning the strategy.
- Improves you at allocating different levels of money for different trades.
Money management and record keeping of trades are most vital. This entire concept is explained in deep in the Irresistible Stock Market Architecture Course, ISMA course, and the Best Stock Market Institute In Delhi.
2. Trade In Smaller Quantities.
Trading in smaller quantities helps in minimizing losses. This could additionally reduce the emotional distress caused due to larger amounts of capital. Once a trader becomes confident and successful in the strategy, more capital can be deployed.
3. Allocate A Party Fund.
Even if you’re tempted towards penny stocks, and high-risk stocks, to feed your enthusiasm, you can allocate 5% of your Stock Investment Portfolio to such stocks.
- Not more than 5% should be allocated to penny stocks.
- This money should be something that one can afford to lose completely.
4. Formulate A Long-term Strategy.
Every trader should plan their financial future by formulating short-term and long-term goals. Further, a trading and investing strategy should be formulated based on the goals.
It takes time, commitment, focus, dedication, determination, etc. to become a successful trader. Mistakes are natural while learning anything new. But that is how everyone grows. Knowing the mistakes, acknowledging them, and correcting them are what a winner does.