Updated: Nov 13, 2020
1. What do you do or prefer? Trading or Investing?
2. What is your reason behind trading? Earning or learning?
3. What is your stage? Beginner, experienced, expert
4. Do you fix your goal?
5. What money do you use? Savings, borrowed or surplus?
6. Are you ready to take the risk?
7. Do you diversify your portfolio? And, how much?
There are people who earn almost every time they trade and there are those who lose all of it every time. And people who are in between these terms, they are not happy enough of returns they’re getting.
The stock market is where people lost all of their hard-earned money. But is it the same case for all?
No! There are people who became billionaires by just trading in the market.
The term trading will be wrong because these people who became rich are not by trading but by investing.
Difference between trading and investing is when you buy the shares and square off after getting enough return on maybe same day or in some hours it is called trading and when you hold these shares for a few months or years and then sell at greater price it called investing.
So here’s our first question,
What do you do or prefer? Trading or Investing?
This can be your first key reason behind your unsuccessful trading.
You are buying the shares but you are not patient enough to wait till its value rise. You must keep patience so that share prices can reach its upper limit.
You can sell shares at a good profit in less time may be in the next 10 seconds to 10 minutes. But it needs more units to be traded.
Say you bought 100 units at 200Rs, total price 20,000Rs. You sell them the next minute at 203Rs, you got 300Rs straight profit. And if you bought1000 units at the same price and sold at 201Rs, your straight profit is 1000Rs. Are you getting the point? That means if you want to profit in less time you need more units to be traded.
But if you wait to gain it more points it can drop suddenly below 200Rs and if you sell it impatiently, you may land in loss.
If you want more profit with fewer amounts to trade you have to invest it that means you’ve to hold it for a longer period to reach its peak.
So be sure you want to be a trader or an investor. Because you can’t use your invested money till you sell the shares.
What is your reason behind trading? Learning or Earning?
Maybe you take stock market seriously but have you done your study?
Any person who became successful in any field is because of his continuous study and research. But they also implement their study in real-time which gets converted into the experience.
This continuous process of study, research, and implementation is why they achieved those results.
You have to learn the basics of the stock market before start trading. It is safe to start small. Most of the time enthusiastic beginners lose a lot of money just at the start of their journey and end up losing confidence also.
To avoid this you need to start small for the sake of learning. In the start use your enthusiasm in learning that will save you from loss.
Read daily news, study the market trends in different market conditions, types of charts, and indicators. Do basic research; you can learn everything on the internet you don’t have to pay anywhere.
What is your stage? Beginner or experienced or expert?
Being an expert is a myth in the stock market. There is no one who can say I’m an expert in forecasting exact market conditions. The market can be upside down in seconds.
There are only those who experienced in this field. They use their study and experience to analyze the market and take necessary decisions.
Beginners should focus on learning more than earnings. Every beginner doesn’t get good results unless guided by someone experienced. They make big mistakes at the start and it is good to make mistakes that way you keep learning.
But the problem with the beginners is after they make one or two good profit trades, they become greedy and end up doing big mistake and may lose money they can’t afford.
Mistakes are bound to happen but the taste of money is blood on the lips and will push you to do bigger mistakes and more often.
And on this point here comes the next question;
Do you fix your goals?
If you’re playing intraday, as good practice beginners should make daily goals. This will keep you away from big loss and greed.
Fix your daily goal like the number of trades you’ll play, the amount of money you’ll play with, and also you can fix the profit percentage in each trade.
Try to be honest with your goal, because most of the time after playing two to three profitable trades you may ignore or forget your goal. Also sometimes people after fixing goals play one or two more trades to make up the loss on previous trades.
This strategy is also used by professionals.
What money do you use in trading? Savings or borrowed or surplus?
Every successful trader doesn’t use their whole capital in trading. They decide their benchmark and keep up to it. Do not use more than 5% of your capital for trading.
This is a learning from my experience and all traders; do not use your savings and borrowed money for trading.
If you don’t have money, use demo accounts with virtual money to practice but do not waste your savings.
A lot of people are in huge debt because of using borrowed money. Some of them are in jail and some in depression.
So make sure you use surplus money for trading and as I already said, fix your goal to not lose all of it.
Read my blog on ‘My first stock market experience’.
What is your risk profile? The stock market is all about risk.
Do you know your risk factor? How much risk you can take?
Are you ready to take the risk? Because, the stock market is all about risk-taking capacity.
Make sure of how much money you can afford to lose. Also how much time of day you can invest daily in trading and plan your entry and exit points accordingly.
The professionals analyze the market all day long. They give their 7 to 8 hours trading and you cannot expect the same results by using trading as a side hustle.
There are different strategies used in the stock market for example Scalping, Swing Trading, Reversal, Position Trading, and Day Trading. Choose your strategy according to your risk factor.
Do you diversify your portfolio? And, how much?
Diversifying your portfolio is very important to avoid losing all of your money.
As a beginner, you can list out all the well-doing fields like banking, coal, oil & gas, IT, etc. And choose the top profit yielding companies in those fields.
Buy shares from all those selected companies this way you’ll diversify your trading. This makes sure you will not lose all your wealth at the same time. There are very low chances of doing all fields bad at the same time.
If you lose money in a trade, others will definitely compensate for it.
But do not diversify too much. Because there is limit of how much trades can be handled by one person. As you have to keep focus on all trades simultaneously and even 5 seconds can be crucial, do not overdo it.
What do you think about this blog? Did you find your reason? Comment your reason.