Trading Guide: Two common mistakes which new traders should avoid making

Markets have been witnessing an overwhelming increase in new participants for the last two years and most have had a dream run.

And it won’t be wrong on their part to think that they have wasted years working hard for money when there is an avenue to become rich in no time.

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Markets were forgiving their mistakes likely chasing the stocks, buying penny stocks, not having any stop losses etc., which is normal in a liquidity-driven rally.

The prevailing corrective phase and recent choppiness have given them a reality check.

Through this article, we’re trying to touch upon some of the common mistakes new traders usually make and how one can avoid, making their trading journey less eventful and more profitable in the long run.

Ajit Mishra, VP- Research, Religare Broking Ltd highlights 2 mistakes that new traders might make:

a) Know Yourself: Selecting Trading Style Based on Your Personality

It starts with identifying the type of trader you want to be like Day, Swing or Positional trader depending upon your personality. Intraday trading requires quick decision-making and should only be attempted once you have some experience of how markets behave.

Swing/Positional traders are at ease as they take a position for more than a day and look for substantial gains by carrying that for weeks or months.

Ask yourself what trading style suits you best and select accordingly.

Unfortunately, most new traders start with intraday/day trading due to capital constraints without knowing the consequences. And, they end up losing their hard-earned money to a bad trade.  

b) Trading Without a Plan: Hope-Wish-Pray

Generally, a new trader tries to stay cautious to begin with, but after a series of winning streaks, thanks to beginner’s luck, they tend to forget or are not aware that markets move in a trend (up, down and sideways) and have no plan in place when tides are against them.

At times, despite having a proper trading plan in place, it’s human to deviate, especially when in loss due to psychological turmoil attached to it. They just hope that the stock would resume the uptrend soon and then they’ll exit.

Unfortunately, it slips further lower adding to the anxiety and they wish the stock price to come back to their buying levels to exit.

But, markets may have other plans and continue to inch lower. It is very draining for a new trader to see his capital evaporating in front of his eyes and thus end up being an investor or giving up their dream to become a trader.

Maintaining the disciple when markets are against you requires written rules of entry, exit and money management before initiating any trade and keeping those in front of your eyes always to avoid any psychological dent.

When you would know your losses in advance in any trade, it won’t be hard to press the exit button.

Always remember, to succeed in the markets in the long run, maintain your focus on keeping your losses minimum and maximize your gains when the trend is in your favor.

Happy Trading!!

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)