There’s been too much written on being successful and everybody has given mantras of success from making a great dish to weight loss to financial advice and more recently the stock market tips.
If you analyze and the experts agree, the success rate in say weight loss programs to stock market trading is not more than 10% - 20%. The remaining 80 – 90% are left reading the mantra’s to get in the 20% bracket. If you read about people like Warren Buffet, Jack Welch, Bill Gates, they tell you that avoiding mistakes maybe a better way to approach the task at hand.
If I can offer you any advice, it will be – 10 rules to guaranteed failure in money making from stock market. If you follow them religiously you will be surprised how fast you achieved your loss targets. You will also realize how much money I must have lost to discover these times trusted loosing techniques.
If you analyze the success formula, there exists none, but look at what successful trader avoids, and you find some striking similarities
- Follow your brokers or friends stock tip, better still watch CNBC: I am not against the news channel, but we should understand that the news which lands in retail market has already been known to the 10% successful guys and reacting on that will do nothing more than playing in the hands of professional traders. The channel flashes that inflation is down, and you react by buying in the next day, chances are that you loose money. Ideally you should focus on “how the market reacts on the fundamental news” and not the fundamental news itself
- Start day trading and trade daily: To satisfy your emotional need of getting the thrill and excitement of stock market, start day trading and trade daily. The chances are you will be selling at the lowest and buying at the highest price, and if you do it for more than a month, I guess you will be hooked in spite of loosing money, first by acting on the wrong price points and before you realize, on brokerage charges
- Borrow the money and better still trade in futures & options: If you don’t have the money borrow, maybe a personal loan with an interest of 18%+ and then leverage it fully by choosing the latest brokerage house in the game which allows the highest leverage and invest in futures. Buying an illiquid stock option when the market is going up also guarantees you loss. Now, Bull or bear, this is asure way to loose it all
- Put more than 10% of your capital on a single trade: Now if you are playing the market for thrill and satisfy the boredom in your life, place more than 10% of your trading money in a single stock and invest fully. What it will do is, when the market gets volatile, the fluctuations will trigger a negative emotion and you would avoid taking a loss and keep holding the ever increasing losses
- Don’t cut your losses and take the profits where ever you make them: This is one of the most difficult to follow as “let the profits run” require more relaxed approach to avoid getting out, while in “cut losses” one is actively looking to get out. To master it, it takes time. Fall in love with your stock and losses will be your partner
- Follow some body’s trading system, better still invest randomly: Trading is very personal and it has to match with your natural approach towards risk & reward profile and the temperament. You can’t import it and follow, sooner or later it will dawn on you that you can’t perpetually fit in somebody’s else’s clothes
- No exit strategy, no stop loss: The early stage traders are very courageous and they venture into any stock with their view and do not feel necessary to put stops, but when lot of positional calls go wrong, stops as an idea suddenly looks attractive. The problem is where you put them. Again put your stops at yesterday’s high or low or put near the 200 DMA, and your stops are likely to get hit. The idea of stop loss is to buy protection from the trend reversals, so if it very close to the trend line, it will be broken.
- Approach it as any other business: In stock market, minority wins, so if you approach it like any other business, you can easily achieve your loss targets. Take profits soon, don’t take the loss, follow a particular style of business throughout, do the business as others do, all these approaches will not make money for you.
- Dream your success and even decide what to buy from profits: When you have experienced the beginners luck syndrome, you can get pretty confident on your approach and make big plans from the expected future profits. Infact, you can plan to make the profits to fund your next car of 10 lac and target that once your profits reach 10lac in the recent swing, you will take it all. Believe me, markets don’t run on your targets of profit and since you have set profit points based on your car price, you start looking at the price emotionally and not rationally, which ensures that your trading decisions are not right
- Trade emotionally: Let your emotions run the show, like deciding on, I have lost money on Infosys and now I will definitely make money from the same stock or even if are loosing money you don’t sell as you feel that everybody knows your position and you will be seen as the guy who looses money in the market. No body wants to be seen in that light. You can also take the approach of doubling your positions in the name of averaging, when you are loosing money on the trade, and when the price slides again pressure doubles and you are likely to square off your position at exactly the lowest price point
If you still manage to hold on some cash give me a call.
Sourabh Sharma is an alumnus of
IBS,Mumbai’99.
He is the director of Seema Sandesh
You can contact him on sharmasourabh2001@yahoo.com
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