7 blunders the first time trader makes while equity trading in india

People that trade stocks can be classified into 2 categories depending on their frequency of buying and selling stock – traders and investors. Traders mostly buy and sell securities frequently as compared to investors who hold positions for longer periods sometimes extending it to a few years. With that, it is important to realize that trading between short period can result in mistakes that can completely drain out a new trader’s investing capital. Here are a few of the mistake that a trader makes:

1. Handling losses ineffectively-

One of the characteristics of a successful trader that sets them aside from the competition is able to handle loss and move to the next trade idea. Unsuccessful traders get paranoid and troubled for the smallest of losses. Instead of capping the loss with a stop-loss they hold on to a losing position hoping that the stock will ultimately rise.

1. Failing to execute Stop-Loss orders

Not implementing stop-loss orders could be one of the biggest mistakes made by a trader. Tight stop losses limit losses before they grow into sizeable. There may be a risk involved where the stop-loss order may be executed at levels below the one specified.

1. Not having a game plan

Experienced traders will always think two steps ahead. They know where to enter and where to exit, how many portions of their capital to be invested in the trade, the threshold for the loss they are willing to stand, etc. Beginners will usually not have a trading plan and even if they know they will eventually overlook it if things do not work out the way they want them to.

1. Too much leverage

Leverage has its own benefits but it could also act as a risk to you. That is why they say Leverage is a double-edged weapon. In trading, on one hand, it could increase your profits on trade, while on the other, it could worsen your losses. Traders may be overwhelmed by the amount of leverage they have, especially when it comes to forex trading but may soon have their trading capital damaged in a flash.

1. Herd mentality

Another trading mistake is that traders will likely follow the herd without any second thoughts and as an outcome end up paying more for a stock or park their money in bonds that have dipped and might possibly turn around. Experienced traders, aside from being knowledgeable of trends are used to exiting trades when they get overly crowded.

1. Neglecting homework

A lot of traders tend to not do their homework simply because it may be a hassle. If you are an Indian trader, doing adequate research before a trade such as going through equity research reports in India before doing a trade. Beginner traders do not possess the knowledge of yearly trends and how different events affect stock prices, and intuitive trading patterns that a lot of experienced traders have.

1. Trading between different markets

Beginners may tend to be less focused and oscillate between different markets such as stocks, options, futures, bonds, etc. This could great a lot of trouble for the trader and hinder him from excelling in any one appropriate market. Dealing with multiple markets should be done with some supervision from investment banking companies in India that will advise you on what investment means could benefit you the most.

Sonaber Surani, I just love to write and explore new places.