Whether you are a veteran trader or are just starting to invest in the stock market—there are some errors that traders end up committing—which are easy to fix, only if traders realise them!
1. Trading without a strategy
Blindly trusting news tips from unreliable sources is a major mistake that most traders make. Many a times brokers who rely on a percentage of the amount that you are trading might not have the traders’ best interests at heart.
Identify whether you are bullish in your risk-taking and understand if it suits your financial portfolio. If you are unsure about which strategy to adopt there are resources available online that take you through technical analysis and fundamental analysis approaches towards trading.
2. Trading too often
Many a times there is an emotional pressure to trade—it could be because others in the market around you are trading often, perhaps it is because it is the “season” to trade—whatever the reason may be it is important to know the facts of the stock before placing a trade.
If trading often is your strategy and it works for you—then there is no guilt feeling in doing so. However, if you are trading just for the sake of trading without understanding the reasons, consequences and impact on your returns—then that would be qualified as a trading mistake that you can avoid
3. Trading without a stop-loss order
Putting in a stop-loss order on a trade limits your loss as an investor. It is an order that you as the trader buy with a broker which tells her/him to sell or buy a particular stock as soon as the stock reaches a certain price. Even if you plan to buy a small volume of shares, purchasing a stop-loss order is always a helpful precaution in trading.
4. Keeping trades un-organised
Regular traders might find that keeping track of their picks of futures, options, currencies and commodities gets tedious. The key to maintain your peace of mind and trade intelligently is to keep track of your past trades, profits and losses. Additionally, monitoring financial information of the companies whose shares you own can help in making sure that you are investing your hard earned money, wisely.
For the intra-day trader tools such as an online trading app are crucial in monitoring market changes. Investors who trade less frequently but are very much interested in keeping their trades organised can use online resources as well as create their own simple organisational tools such as excel sheets, lists, word documents etc.
When the rest of your life is organised, why not your trades!
5. Investing all your savings in one trade
Many a times, a chance to trade might just look too tempting. It might come to you in the form of a hot tip from a trusted person and your instinct might tell you to invest all your savings in one trade. The age-old financial advise—don’t put all your eggs in one basket—stands true even in the 21st century.
6. Paying too much in brokerage
Choosing the right broker is one of the major decisions that you make as a trader or an investor. While choosing the right broker many traders make the mistake of equating cost of the broker to the broker’s quality. However, many discount brokers who offer easy-to-use online trading platforms, offer cheaper brokerage because they eliminate their overhead costs—such as the cost of coming to your doorstep every time there is a new trading opportunity or bombarding you with stock trading tips. These discount brokers invest in top-notch technology to provide quality charting indicators which would help you reduce the amount you pay in brokerage and maximise your profits.
Find the right broker for you who will have your best interests at heart—a company that is legitimately registered with SEBI, is secure in transferring funds and follows the guidelines of all the exchanges that it offers trades on.