When we hear about the top share market traders and the staggering returns they have earned out of investing and trading in stocks, it motivates us to be like them and earn not only a living out of the stock market but also multiply our capital in life-changing ways.
Rakesh Jhunjhunwala, Radhakishan Damani, Nemish Shah are some of the names that come to our minds when we think about how we want to be in a few years from now. Then, we do our research and enter the market in hope of being different than the average players and perform exceedingly well from day one.
But then comes the disillusionment part and we find ourselves robbed of our hopes and dreams. Many people have faced rude situations like heartbreaking losses or even complete capital washout from the stock market.
There are two things that we must ALWAYS realize.
First, we have chosen an extremely difficult profession or source of side income. Outperforming the market seems a distant dream when we are not even able to outperform the median of our peers. Second, even the best of the traders need to constantly improve their skills, knowledge and strategies.
Just like anything, the stock markets are constantly changing and so is the world economy. The strategies that worked last year may not necessarily work next year. In fact, for an intraday trader, the strategies that worked yesterday may not work today. So, we should be mentally prepared to be always on our toes and keep working hard in order to keep ourselves updated with the stock markets.
Now, let us discuss the most common reasons why people suffer losses from stock market trading (or in other words Why You Suck in Share Market Trading) and some possible ways to avoid them. Although one should understand that there is no absolute full proof way to trade in stock markets.
Lack of Discipline:
The first and the foremost thing we must keep in mind is that there is absolutely no place for emotions in the stock market. Fear, hope and greed are the worst enemies of a person trying to establish himself in stock markets.
Now, to keep ourselves away from these feelings is a huge challenge. Discipline is required at every stage of investing and trading.
There are two aspects related to it:
Formulate a Strategy
Before entering into the world of trading, one should have a money management strategy in place. This strategy may include how much capital to invest in a particular trade, setting a maximum percentage risk on any trade, setting a target return percentage from a trade, etc.
One must always decide a stop-loss for each and every trade and stick to it. Setting a stop-loss is the best strategy to keep one’s losses under limits. One must remember that it only takes a few bad trades to blow up the entire account. Proper money management will mitigate this risk.
Stick to the Strategy
The next part is the most essential thing, also the most difficult thing to follow.
That is sticking to the strategy with each and every trade one makes, no matter what. This is easier said than done. When profits come, it feels very easy but when one starts to suffer losses, one is tempted to quit. On such occasions, one must keep in mind that losses are bound to happen in stock markets. Even the best traders of the world do not enjoy profits in all their trades, they also suffer losses.
There is nothing like a 100% win scenario in stock markets. The tough times need a lot of discipline to get through.
Incorrect Choice of the Markets:
This is one of the biggest reasons why people are not able to perform in stock market trading. They do not choose the markets in which they want to trade properly. The decision of trading in the equity market, futures and options market, commodity market, currency market or a combination of more than one of these markets should depend on the person’s nature, experience and preferences.
For example, some people may feel comfortable in the relative simplicity of the equity markets while some people may prefer the challenges of the complexities of the futures and options market. One should be true to himself and devoid of any ego.
The selection of the kind of markets to trade must be made very carefully because it makes a huge difference in one’s profitability or the lack of it.
Lack of Proper Tools to Trade:
The Internet is a boon for traders of this age because it has given a number of inexpensive and highly efficient tools for trading. For example, one can screen stocks of one’s choice based on different performance criteria with just a few clicks on some websites or mobile phone apps.
Similarly, one can know about buy, sell or hold signals for a particular stock on the basis of technical analysis without going through the complex and highly time-consuming process himself. There are some websites which apply all the rules of fundamental analysis and help in making decisions on its basis. There are so many websites which provide oceans of information about each and every stock trading in markets.
We just need to find the correct tools based on the kind of trading we are in. Most of the times, those tools are absolutely free or extremely cheap in comparison to the services they are providing. For example, swing traders may find technical intraday charting and screeners less useful than intraday traders.
Lack of Hard Work:
If someone thinks that spending just a few hours in the stock market will give him his desired returns, then, he will definitely be disappointed. Even the most experienced and seasoned players find it difficult to maintain their edge in stock markets without dedicating a significant amount of their time to the study of markets and the whole world economy and constant improvement of their skills.
If one needs to establish himself as a trader, one must have sufficient time to devote to the markets and work constantly to be better with every day.
Low Speed of Information:
If one depends on newspapers or magazines for keeping himself informed about the current events happening that concern stocks of his portfolio, then, there is absolutely no use of it because, in this fast era of information transfer, newspapers are too late in reporting news that moves share prices.
One should subscribe to news feeds and tweets with news about concerning stocks and check those before the opening of the market and make his moves accordingly.
The Goal is Money:
This may sound counter-intuitive but it is absolutely true that it someone’s goal is just to make money out of the stock market, it is going to be an extremely difficult task for him because the focus is on the wrong thing. The main focus should be on trading consistency.
The goal should be to learn to trade and maintain focus an discipline to master the skill of trading and not money. The best professionals in any field are the best because they are interested in the profession and not money. Money follows when one attains mastery in any field.
Moreover, if money is the main goal of an individual then, there are many much easier ways than trading in the stock market for it. One should not enter into the stock market because of money as it is highly risky.
Blind Following of Analysts:
When one watches analysts advising about certain stocks on news channels, they look pretty convincing and one might make decisions based on their recommendations. But sometimes, these analysts have vested interests in some of the companies they are recommending.
One should always keep in mind that these analysts could be biased too. Some of the analysts are even paid for making certain recommendations and that is the reason why some analysts may be giving buy advice on one channel while others may be giving sell advice on another.
One must be vigilant enough and use his own research and analysis before making any decision.
To conclude, if one wants to be successful in stock market trading, one must not give way to his feelings. Be conscious at all times and aware of any hope, greed and fear coming during trading.
Remember that money should not be the goal in one’s mind. One must strive to be a better trader with every trade. One must be prepared to put in a lot of hard work and practice discipline under any circumstances. One should equip oneself with the best and inexpensive tools available easily on the internet.
One must be well informed about the current events concerning his stocks and should not take advice from financial analysts without applying his own brain. Even after applying the above-mentioned advice, losses will happen because they are inevitable. Be patient in tough circumstances.
These are the testing times and they will pass away if you are dedicated and disciplined enough. Happy Trading!
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