The major reason why traders lose money is they make the same mistake over and over again. They do not realize that if you do the same mistake again you may get the same result again.
Here are two biggest mistake traders do:
1) Hoping of a reversal and not taking stop loss when it comes, and
2) Taking profits early in the fear of making a loss if you do not take out the profit.
3) Averaging a losing trade : This is again a blunder. You should just take a stop loss that is all. Averaging a losing trade means you will lose more.
4) Adjusting a losing position : Well this does not only cost money but cost brokerages as well. Adjusting a losing trade is nothing but taking a loss in one trade and making another trade.
5) Taking Tips from unknown sources : In India unlike the developed nations advisory services are given by unknown people. It does not end here. They claim of making 3000 to 5000 a day (some claim 1.5 Lakh in a single trade) on investment of mere 50k is unfortunately believed by even the educated people. What happens next is a pitfall of losses. I have written a lot in my blog not to take tips. You can read this one as why taking tips will not make you rich.
6) Freely available YouTube strategies : Today no one wants to read. Everyone is interested in YouTube. XYZ makes a video – uploads it – you see it and take a trade based on that next day. Do you even think twice before taking the trade?
7) Reading a tip on a website and trading based on that. This one is silly.
If you can stop doing such mistakes you will become a better trader in 2019.
A trader has to take some important decisions when a trade is going on like to hold or not, buy or sell, exit with profit or with stop loss etc.
You cannot get emotional when you take such decisions. If you do not have good skills to take correct decisions you will almost always take bad decisions.
Make this year your goal to keep creating winning habits and keep away the losing ones.
Here is some more reality on why traders lose money when they start trading.
99 out of 100 traders do not know even the basics of stock markets. They just think that since they have invested money, they will make money. It does not end here – they start dreaming big like if they start with 10k investment they will end up with over one lakh in one year. This is 10 times the invested money – all that they dream of making in just one year. All this without even knowing the basics of stock markets.
After few losses they realize they are inherently bad at trading. Then a long journey taking tips and advisory service starts. Media and social media also plays a very bad role in the minds of traders. It is very common to see Telegram channels filled with thousands of subscribers where huge profits are shown on a stock. The traders who join these channels start believing the same.
Here is a trick to show great profits in stock future trading in Telegram channels:
Open two accounts. In one account short any stock. In other account at the same time buy the same stock future. Wait for a couple of hours. In one there will be huge profit – in other account same loss. So the Telegram channel operator loses only the brokerage but is able to take a great profit making screenshot and show to his channel members/subscribers. So easy. The subscribers get spell-bound by seeing the profits and readily pay upward of 30k for a course in some hotel with breakfast, tea and lunch. After they come out from attending the course they practice the same – but its obvious what happens next. They lose money trading the same strategy they were thought in the seminar.
Well I get calls from traders who have done many courses but yet are failing – so what I have said above is pure experience.
You can check testimonials in my site – this my customers are saying not me. Its obvious my customers will not take one strategy in one account and another strategy in another account and send me the profitable screen-shot. They will tell me what exactly they are making.
Despite what you may see on the internet, no one became a consistently profitable trader overnight. It takes a lot of time and effort to become a good trader.
In order to become a successful trader, you must have basic knowledge of how stock markets work, how options and futures behave, what are the risks involved, trade plan and lot of other things like risk management that a normal trader does not know. And of course you must have the psychology to conquer greed, speculative and over trading.
Here are some belief systems that you must change to become a good trader:
• The market owes me money today because I am a good trader I work very hard I know everything (ego)
• Everyone else is buying, so I will also buy (speculation)
• It’s not a loss until I decide to take loss (bad trade management)
• The market is manipulated by HIIs (blaming others for their own problems)
• I need to make back the money I just lost (revenge trading)
• I’m a terrible trader because I lost on on trade (decision based on just one trade not statistical analysis)
• I’m a successful trader because I put on a winning trade (decision based on just one trade not statistical analysis)
Here are some belief systems that you must have to become a good trader:
• The market owes me nothing, I need to prepare and learn to trade and earn (willingness to learn and no ego)
• The crowd is usually wrong, I will trade what my research says is correct (willingness to research and trade not copy)
• Taking small losses (when stop loss is hit) is necessary for profitable trading (trade management)
• The loss was my fault, not anyone else’s and I will not repeat this mistake ever again (taking the blame and learning from it)
• Wins and losses are randomly distributed, one win or loss doesn’t define a trader is good or bad (decision based on statistical analysis)
• No worthwhile result in life comes in one or two months – it takes years for real results to show (understanding that it takes time to make money in stock markets)
What you learn from the above is to accept responsibility for every trade. You have sacrifice short term pleasure for long term success. Remember that in trading (and in life), the more responsibility you take for your outcomes, the more you can control and improve them.
Please note that it takes some time to get our habits change. It takes on average 66 days before a new habit becomes integrated in our brains.
So if you have read the above article just now and start formatting these habits from today – you will not see any significant change in one day. It will take approx 2-3 months for the change to be seen.
Here is what you can do right from today – keep a stop loss of 5% on the margin blocked on all your next 10 trades.
Whats the max risk? 5*10 = 50% of your money gone if all the time your trades hits a stop loss. But this will have a major impact. You will always take a stop loss on 5% on every trade. Can you see how habits works like magic?
So if you decide the above you may have to pay a small price in the short term to eliminate a habit that could make it impossible for you to become a profitable trader in the long run.
Changing habits is a very difficult and long process, which most of us fail at. If it was easy, everyone would be rich and successful – if not rich at least happy in life. Do you know to be happy in life you do not need millions of rupees? If you can shed your ego you will become 50% more happy than what you are now.
Well I can write a book on how to be happy in life that will include a lot of things but lets leave it for another day.
Most of the people who set New Year’s resolutions give up by February. If you are reading this just tell yourself that nothing worthwhile is an overnight process – and help yourself to change your habits especially trading habits and see how you will change in next two months.
I am ending this post with the hope that you live a better life as a trader after reading this post.
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Dilip Shaw, Founder
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