Many people want to make easy money by trading in stocks. But not everyone makes money. Novice traders tend to get influenced by several external as well as psychological factors. Besides, lack of basic knowledge of stock market leads to costly mistakes whereby traders take positions which are beyond their capacity. Also, they tend to trade blindly following other traders making more money in the market. In this article, we have highlighted the 10 most common mistakes traders usually make knowingly or unknowingly.
Trader must avoid the following mistakes to get maximum profit:
1. Entering Market Without A Concrete Trading Plan
Without a well laid plan, a lot of traders buy stocks they think would give them higher profit. But then what? As per our observation, very few of them analyse if the purchased stock would actually work out or not, the right time to sell the stock, the target price and stop losses. One can minimize potential risks to his/her portfolio only by figuring out these aspects beforehand.
2. Not Sticking To A Single Trading Pattern
Traders must identify an appropriate trading pattern and adhere to it. The best way to check if a trading method is suitable for you or not, you should execute a number of trades at a time following a single method. If you lose money consistently instead of gaining profits, find ways to improve your trading strategy. find best stock brokers in India.
3. Already Surged Much & Can’t Rise Further
Most of the traders tend to believe that once a stock surges up to a lifetime high over a period of time, it cannot go up any further. Considering this wrong notion, many traders end up selling at that particular price. However, experts believe that this practice is not healthy and recommend analyzing a stock in terms of the nature of the company, valuation, future growth prospects etc. Bajaj Finance can be an apt example. In August 2013, the stock was trading at around in the range of Rs 1,000-1,200. Interestingly, the stock is seen to be hovering at around Rs 10,000 in August 2016 (nearly 900% rise).
4. Corrected Too Much & Can’t Fall Further
When a particular stock already corrects much over a period of time, a lot of retail traders tend to believe that it will not fall any further and decides to purchase that stock. For instance, stock of Treehouse is so far trading in the range of Rs 31-33 in the current month. In the corresponding period last year, the stock was seen trading in the range of Rs 315-320 (representing a fall of nearly 90% on year on year basis). To simplify it, a stock can get corrected to this level when the market fundamentals go wrong.
5. Trying To Catch The Top & Bottom
Most investors try to catch the top and the bottom aiming to achieve maximum profit. However, where they fail is to realise that no one can guess at what level exactly a stock would make a top or bottom. Experts suggest retail traders to determine the value and target price of a stock and buy it within 5% to 10% range of their estimated buy price.
6. Fail To Cut Losses
Most of the traders enter stock market with a mindset that they are always right. With such a frame of mind, many traders hesitate to cut their losses when a trade goes against the way they have thought, or the trade fails to generate the desired returns. In other words, when something goes wrong, most of the retail traders hope and pray that the market eventually goes back in their favor to prove they are right. But as per experts, unless you are a short-term trader, there is no point in trying to “protect the profits” or “cut losses”. Open Demat Accounts at right place.
7. Taking Early Profits
What market experts suggest is that one should exit trades only when the time is right. In other words, a trader should exit a trade based on his/her exit signal only. But then, a well planned investment would be to stay invested for long-term if a stock is good and promising.
8. Price Averaging
A lot of traders believe that price averaging brings down the purchase cost of a stock. They follow this notion thinking that would allow them to sell the stock at a marginal profit or at least closer to cost price. According to market experts, following this practice is highly dangerous for an overall portfolio. Instead they suggest that on selecting a wrong stock, accept the mistake and sell the stock, book your loss, and move ahead.
9. To Have Bullish/Bearish Opinion
When investing or trading stocks or any other financial product, to have a bullish or bearish opinion about market trend is harmful. The opinions that traders have may or may not be right as profitability purely depends on mathematics. There is no harm in having personal perspective and talking points on various sectors, but one should not end up taking a wrong decision because the trade does not match his/her opinion.
10. To Have Blind Faith On Advisor
There is a sea of traders who completely back on their investment advisors or fund managers for every market move. In other words, they tend to have blind faith in their advisors. Certainly, some experts can beat the market at certain point of time. But there is a difference between beating the market sometimes and beating the market consistently, as they only make up the market.
To sum it up, with trading in equities comes the chances of committing end number of mistakes and at the same time learning from them by identifying ways to improve our trades. By minimizing and curbing these most common mistakes in our day to day trading patterns, we can make the most out of the trades that we execute.