Let me make it very clear, I love traders! They contributed to our profits when we were brokers. And traders would have trader friends, which meant they would get us more and more clients. Sadly Indian markets do not have research figures, but my guess is ‘about 95% or more’ or Retail unprepared traders would lose money over say a 5 year period. If they continued trading beyond that period, it was to burn family money. Oh, I love them!

What are the common mistakes that I have noticed ? Well, here:

1. Unplanned life, unplanned trades: Most of them came to trading because they had no clue about what to do once they had graduated. They would just ‘drift’ into what the mothers said ‘he is doing something in the share market’ . This kid would just come to our office and watch what others did, and do a cut and paste. Not a single trade would have been well thought of or researched or done as a strategy. If everybody was buying he would also buy Reliance, or SBI. Or he would short L&T. This is foolish and can NEVER work.

2. Not having deep pockets to hold delivery even for a day: The size of the deal that they used to do would be so huge that if they had to carry over the position for a settlement (each of 14 days) they could not. This meant sure losses because of something going wrong in the economy, not just in the scrip that they had bought.

3. Letting Losses Run: ‘Hoping’ that the market will change direction is an absolute NO NO for a trader. If you are an investor you can average, but if you are a trader you have to have ruthless and sharp stop losses. Without these technical indicators, you are dead meat.

4. Taking profits too early: If a trader bought Bharti at 270, he would book profits at 276 – barely covering the transaction cost and the risk costs. Nothing very wrong, but when you play such sharp games you need to play big numbers – say 30,000 shares. If you are playing 300 shares you need to make more money for the trades to make sense. This coupled with (3) ensures that there are ┬áno great monies to take home.

5. Chasing losses: You start trading at 9am…by 10 if you have closed 3 loss making deals, go out and take a break! Sadly novices will chase losses – a) on the same day and b) on the same scrip. If you have lost money on L&T on a Monday, it is perfectly possible to make money on Ongc on a Tuesday! On days when you get trades wrong, take a break. Or do smaller trades in different scrips.

6. Not maintaining a trading diary / log: If you do not learn from your own trading experiences, well, you will contribute to the broker welfare fund. Sure, we love you more!

7. Overtrading: Trading beyond one’s financial and mental strength. Not everybody can keep a Rs. 30 lakh open position and live peacefully. Only the successful traders can. These novices with financial strength of keeping Rs. 5L open position and mental strength of Rs. 3L would suddenly build up a position of Rs. 8L and when our dealers pressed them for margin, they would close positions – WHICH SHOULD NOT HAVE BEEN built in the first instance! This is suicidal, and very common.

8. Doing single big trades: With a limited capacity if you put all your eggs in one trade, then the tension kills you! Most novice traders are better off doing many small trades (even in the same scrip) rather than do big risky trades.

9. Not reading enough about trading. You must, must, must, must read about successful traders. In different parts of this blog you will find lots of books mentioned – there are many books about traders, do read them.

10. Trading HAS to be learnt: all these kids come with zero education, learning, observation, or training. No field can u succeed without these basics. Not even medicine!!

 

 

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  1. my impression is trading in share market is mostly zero sum game, that is, one (or all) gains , as much as one (or all) looses. so only a few may earn.

  2. no Bharat Shah. It is an awesome way to make money. However it takes a lot of learning. Have a friend who is paid a RETAINERSHIP fee (based on trades done by clients) – his income is about Rs. 2 crore a year. Not bad, eh?

  3. thank you, sir,for the information against my impression about trading. as such , i wished that. my impression is based on my understanding about trading (may be wrong , please enlighten me) that mostly they are to be squared up without actual delivery , so the total gains would be equal to total losses , so only a few may earn on loosing by some others. in case of investing , the investors earn because of wealth creation due to economy, or company progress , or may loose due to wealth destruction due to economy ,or company regression, and not necessarily by loosing by others.
    your most of readers including myself like to know your friend if you don’t mind. is the fee is based on profits or just no of trades?

  4. Like this post..Esp. point 3.. Most of the long term investors in the stock markets, including myself are sitting on huge notional losses, as we did not cut losses timely, hoping the tide would turn and at least the invested principal would be recovered.

  5. I have been trading as a day trader for last 9- 10 years I have never seen any trader making money intraday Only time someone has made money is due to luck or due to taking positions / delivery of shares
    There is only one Larry Williams in this wporld Others asre guinea pigs to be slaughtered by bears/ bulls

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