Trading does sound like an awesome profession, right?
No serious educational background or qualification is required, no long working hours, and no hassles of traveling. By just giving a few hours on weekdays and one will make an insane amount of money to spend on weekends. This is what significant retail traders and investors think when they enter the markets.
Trading is never so easy and sorry to make realize to you that it is a myth. If that were truly a reality, then you would see everyone earning money. Shockingly, 95% of the traders stop trading by their third year and 70% of them don’t last beyond their first year! So let us dig deep to unravel those underlying reasons and understand what needs to be done to stand out from the loosing retail crowd.
Ground Zero: Psychology
The most groundbreaking revelation behind the unbearable losses of retail is their wrong psychology and unrealistic aspirations. People expect to multiply their investments and capital in months and days, which is really wrong. Their statements reflect that they are long-term investors but as soon as they see a profit of even 10% they can’t hold on to it and sell. Interestingly they hold their loss-making shares for a couple of years and even average them down. Most of them hesitatingly admit that they don’t put stop losses. These traits are severely wrong and they could only lead to capital destruction.
1. Investor Mindset For Trading
Usually, long-term investors are the ones who aspire to make phenomenal returns over a longer period of time by buying and holding onto fundamentally strong stocks. Traders, on the other hand, take advantage of both rising and falling markets to enter and exit their positions over shorter time frames, thus making smaller but frequent profits. The majority of traders rely on technical analysis, but some employ different and innovative solutions.
- Stock Fundamental Analysis tells one if that certain stock is worth investing in long-term or not. With fundamental analysis, one can analyze the company’s business, profitability, and overall health.
- Technical Analysis Of Stocks tells you when to buy, what should be your target, how to maintain your stop loss and relevant information. This helps you identify opportunities in the stocks!
- Behavioral Analysis helps you to gauge the sentiment in the market and tells you what the major crowd of retail investors is planning to do.
We completely agree that technical analysis is the core of trading, but usage of a combination of the latter two above-explained topics will not only significantly increase your chances of a highly successful trade but also boost your confidence. A Professional Stock Trading Course In Bangalore teaches you all these concepts, along with occasional live-market trading.
2. Risk Management.
Trading without proper risk management becomes gambling.
Did you ever put all your money into just one single trade and awaited for it to go up?
It’s never good to put all your eggs into one basket. What if it goes the other way around? Do you have a backup plan to protect yourself from the loss? This is where risk management plays a vital role by shielding your portfolio from huge losses.
Solution of risk management:
Having a stop loss and abiding by it can help you in minimizing the losses on the not-so-good days. Having knowledge and understanding of some basic terms like risk per trade, risk-to-reward ratio, position sizing, risk capital, etc. can help you immensely when you implement these concepts. Numerous Stock Market Courses In India can help you do this, but the Goela School Of Finance Online Stock Market Course can empower you to master this.
- Never put all your capital in just a few stocks.
- Before you do anything, make sure you start with fundamentally sound companies.
- Don’t trade or invest into penny stocks or stocks which are less than Rs 100.
Any news whether local, national, or international has the power to influence stock market prices. Union Budget, company updates, Results, corporate actions, elections, rupee vs dollar, and surprisingly even rain predictions impact the prices of stock in both manners.
As a newbie, you have to ensure to observe and understand the impact of news on the markets in the beginning. You should be able to understand the why and how behind the events and not solely focus on the outcome. An excellent way to do this would be to select some fundamentally strong companies from several sectors and observe how news affects their prices.
Example: Screener. in – For company-related updates.
Google News/LiveMint- For business news
Finshots – Business and finance news
4. Investing in learning
Seminars and classes from people who are already in markets provide valuable insights to add to your knowledge bucket. Also, it doesn’t imply that you should be spending huge sums of money to attend a seminar. Some of them are free and are even more beneficial than paid seminars. Sometimes, it’s more about with which you strike a connection.
Be extremely cautious of too-good-to-be-true seminars that ask for money promising you “guaranteed returns”. In stock markets, there is no such thing as a guaranteed return. So the next time, one assures a guaranteed return or promises to multiply your capital in days or weeks, it’s better to stay on your toes in such webinars, if attending.
Let us save you time by providing you with a link to one of the Best Stock Market Seminar In India. This free seminar would equip you with the knowledge and required basic tools you would need to make your first investment in the stock market.
5. Major Do’s For Taking Trades:
- Journal all your trades: This helps in identifying your mistakes and discovering the most suited trading strategy for yourself.
- Diversify. Allocating your money across large, mid-caps to mitigate the risk.
- Start with a small amount of money. If you lose, you will lose small, if you win, you win not big. But in both situations, you’ll earn a lot. The stock market in itself is your all-time biggest teacher.
- Realistic Expectations: Having realistic expectations about your trade is something not many understand. Being greedy in markets will not reward you with extra returns in trading.
- While trading, it is crucial to limit your financial risk to a certain percentage of your account. Having a clear entry and exit strategy would minimize yours losses in the long run.
Learning information with entertainment through the medium of stock market movies would be a great alternative.
Common mistakes to avoid:
- Tips-based trading: Trading solely on tips and alerts without any stock market knowledge would lead to a disaster.
- Failing to plan for failure. Without proper risk management, your one silly loss could erase all of your profits and wipe off your capital.
- Emotional Trading: Making random trades driven by irrational emotions like greed, fear, revenge, and the urge of taking a trade just to trade is a recipe for a Demat disaster.
- Not trading with disposable income and trading with living expenses should always be refrained from.
- Taking leverage: Check out this interesting fact! The founders of Zerodha, themselves asked you not to take leverage if you don’t know how to manage it effectively.
- Not following a proper trading plan. This means, based on your risk appetite, etc. you have to follow a trading plan that best suits your persona.
“Use strategies to build your own strategy” as every person is different in markets. Everyone has separate needs and their own psychological mindset.
As a beginner one has to understand that it is not about the money one makes, rather it is about the protection of capital. The more money one will protect, the longer one will stay in the game. Kudos to your stock market journey!