2012 will be an History after 11 Hours. As a Stock market trader we need to evolve as per market dynamics and be prepared to hit your goals. Traders should do brain storming and self evaluation to highlight the mistake which can ruin their trading account if not contained.Below are few mistakes traders should avoid once for all.
- Shorting the Hottest and momentum stock in the market: I know many traders who lost fortune shorting Karnataka Bank, United Spirits. If you ask the reasoning behind shorting momentum based stocks reason will be as follows
a) Fundamental does not support this stock price.
b) Price cannot go higher than this.
c) It overbought price has to correct.
Stop trading based on your belief, Learn to trade on price action and time tested trading system.
- Having Strong belief “We cannot loose in market” , With this belief traders will trade Huge position size without applying any risk management and position sizing strategy.Trades are based on emotions not on any logical reasoning and most of these trades end up giving huge losses and wiping out the trading account.Most of traders who lose big money are always over leveraged and a small move of 2-3% against them can almost wipe off the trading account.
- Not having a trading plan before taking the trade. EGO is the thing which losing trades have most in them. Really Bad traders enter the markets with a mile of ego along with mud puddle deep understanding of what really works in trading. They have the belief that they are more clever than the markets and they can win based on their own intelligence. The problem is they do not do the homework of studying charts, trends, robust systems, winning methods, the right psychology for winning traders, risk/reward ratios, or the danger of the risk of ruin, or how the top performing stocks acted historically, and on and on. Profitable learn what it takes to succeed in trading, the complete story, while the bad traders learn some basics and think they are ready. They are wrong. The markets will show them.
- Taking low probability trades or going against the trend trades. Its a Thumb rule never short in Bull market and never catch a falling knife in bear market. But traders have the urge to catch the top and bottom and eventually end up in losing as the trade goes against them. Risk management is one of the most important thing which separate a profitable trader from loss making trader.They sell naked puts on stocks collapsing into death spirals and sell calls on the best momentum stocks. They trade with big risks for small profits. They have a few small wins but some really huge losses. When they have a winner they take the profits quickly, but if they have a loser they let it run hoping that it will come back. They are the ones that lose the money, they are on the other side of the good traders trades.
- Traders want a good tip from tipster. They just want to be handed a winning system or a hot stock that just can’t lose. They do not even understand what all the talk of trading psychology and risk management is all about. They don’t need all that, they just want to make money. They just want the fish, they do not care about the fishing pole, bait, boat, or how to fish. Unfortunately they were to busy looking for that fish and didn’t understand the art of fishing, they will drown in the market ocean because they never learned how to swim themselves.
I request readers to share their personal experience by commenting below. Wishing all readers a Happy and prosperous profitable new year 2013.