With Record Opening of DEMAT Account many new traders are entering the Stock Market having Sky high expectation the way market has moved in last few months,Nifty almost up 50% from Lows seen in March.
New traders come to trading excited about learning, and looking for making big money in on small capital.
There is rule of 90,90,90 in trading which means “90% traders Blow of 90% of trading capital in 90 trading days”.
The majority of new traders can make big mistakes that take their accounts to zero during their learning curve. So How to avoid being part of 90,90,90.
Ignoring Position Sizing (Greed)
Biggest reason for Account Wipe out, Trading too large a position size by taking extra leverage due to overconfidence of an entry signal. Think about worst case scenarios before thinking about ROSY scenarios.
Not Cutting Loss (Ego)
Adding to a losing trade. This can turn a small loss into a big loss and feeding your EGO.Adding to a losing trade. This can turn a small loss into a big loss that the ego becomes invested in holding.
Taking positions in markets that are not liquid enough to handle your trade size.Trading in Stock Options which are mostly Illiquid and You can lose a lot of money fast by getting in and out of a trade with a wide bid/ask spread.
Holding on to a losing trade and not taking your initial stop loss. Getting caught on the wrong side of a trend can turn a small loss into a big loss. Big losses are the number one cause of unprofitable trading.
Thinking that you will get rich quick. The stronger the urge to get rich quick, the greater the odds that a trader will take the risks that will lead them to ruin.
Being under capitalized. Trading an account that has not accumulated enough capital can cause a trader to take too big of a position size, and take too many risks.
Trading markets you do not understand. Trading Forex, futures, or options without a full understanding of how they work, and the risks involved, is a formula for disaster. You must gain competence in these markets before you will be successful.
Avoid these dangers and stick with what you know. Trading is a marathon and not a sprint. Make sure you are running in the right direction before you start the race.
Trade small, keep a journal, have an opinion, have a plan.
Knowledge + Experience + Effort = Success
No consistently profitable full-time trader has ever told me they got there through luck. All followed these simple steps:
Step 1: They acquired the knowledge
Step 2: Once they had acquired the knowledge they developed their experience
Step 3: Those two steps are of no use unless the trader is willing to put in the effort to achieve their trading goals.