Mistakes traders should avoid
Whenever there is a fall in the price of a stock it gives an opportunity to the trader to buy that stock.
Whenever there is a fall in the price of a stock it gives an opportunity to the trader to buy that stock. Initially he begins to feel good that he has got the stock at a lower price.
He pats himself for his wise decision and goes into a shock when the stock further falls and falls.
It is too late for him to realise that the stock has changed its trend and it has entered downtrend zone. By now his loss is huge enough and he compels himself to be a long-term investor.
On the other hand, he may not have the capital to trade further. This situation is very often related to every trader.
This is the first biggest mistake of a trader. One should never buy in a negative market trend. Always buy stocks which are in uptrend. Align your work with the movement of trend.
Another common mistake of a trader is over trading. Whenever a stock is moving upward, he increases his size of investment in the same stock.
An uptrend stock incites the trader with greed, and he takes the risk of increasing his investment only to realise that after he bought additional units the stock has started falling. Up and down movements are an integral part of the stocks.
Fear and greed are like two sides of the same coin. Contrary to this situation if a person has exited from a stock with a nominal profit and then the stock surges upward. So, never increase your quantity beyond your capital.
Another mistake of every trader is not maintaining stop loss. The psychology of most of traders is to exit from a trade with four to five per cent profit.
But they cling on to 10 per cent loss yielding stocks with the hope of an uprise. Most of the time the stop loss they maintain also hits. Maintaining or setting up a right stop loss is an art.
Calculate risk reward ratio accurately even before the trade. Exit from stocks which are in a loss. Follow the principle of double trading which means every time you buy a stock you maintain a strict stop loss also.
One needs to have a proper financial disciplined approach towards trading to have minimum loss. Every trader is bound to identify themselves with any of the above three mistakes. To correct these mistakes, we need to change our psychology.
(The author is a homemaker who dabbles in stock market investments in free time)