Three Important Things To Know Before Trading
You may be one of the traders out there, Who has lost plenty of rupees in the Stock market. So in today’s lesson we are going to check the most common trading mistakes a trader does when he starts trading.
So the first important aspect of losing in the Stock market is because of the lack of “knowledge”. What happens in the trading world is people start trading without even knowing what the market actually does. How does it move or where does it move. Most of them who lost in the Stock market are those have heard a friend or a colleague who would have said that making money is easy in the Stock market. That’s because they would have come across some kind of advertisements where it propagates that you can make hundreds and thousands of rupees in the Stock market just by clicking a simple button of Buy/Sell.
Second important thing in losing the market is because of lack of Risk managements. Now most of the traders doesn’t follow a risk to reward ration while they are trading. I’ll tell you why people don’t keep stop loss. The important reason behind it is when they started trading the markets, they would have taken a trade and it would have hit a target, while they are very happy about the profits they made.
Now comes the dark side of the markets. Next time when they start to trade the trades goes against them and now they don’t know what to do because they never had an idea about it. So once they start losing they keep on holding it, At some point when the market pulls back and they have a break even trade and comes out. But this pressure they went through will be there deep down so now they think to themselves keeping a proper stop loss would help me reduce the risk of losing the whole account.
Next trade they use a stop loss. Now what happens is the market comes down and hits their stop loss and boom it pulls back to the target zone. Now they start to curse the market and would say i shouldn’t have kept the stop loss or else it would been in profits. Finally the next trade they take without a stop loss the market moves against them and finally waiting it will reverse at some point the market goes further negative and wipes their account.
This is what happens to most of the traders out there who doesn’t follow a proper stop loss. They start losing their whole investment in few days or weeks.
Lack of Strategy:
Now there is a very common phrase which I ask to all my students at the beginning of a class “Have you even thought why you took this trade”. The most common answer which I hear back is to make money. Just took a trade because the market was very high or very low.
So one of the misconception among the traders is when they see the market rally high in the charts, they start to get an idea that now it’s going to go for a sell. Alternate scenario when the market goes very low they start to think the market will now start to rally up. Even you who is reading this article can be one of them. I’l explain you why after you thought the market is very low still it’s going down, that’s because you never had a proper strategy or knowledge to know whether this price which you assume is high is even the highest point or not. So in order to know what first of all build up a strong strategy where you could be so sure that this is the markets highest point or the lowest points. Do some testing of the market and back test your strategy before you take a trade.
Try checking out all this mistakes which you have done so far and try to change your mind set. Yes! mind set is one of the most important thing that you need while trading the Stock market. Without a proper discipline and mindset you can’t be consistent in your profits.