The foremost principle of profitable stock trading is risk management. It would be best if you reduced the losses to avoid failures and stay long in the market. Let us discuss what investors can do to avoid what may lead to failures.
Important Stock Trading Aspects That Can Help Avoid Failures
Bear Market Needs You Not to Act
When investors see their portfolios’ value declining during the market falls, they feel terrible. Many investors feel it irresponsible to sit back and do nothing. Actually, it is the right approach toward a bear market, especially when you are a long-term investor. If your portfolio is well-diversified with long-term investments, it can handle a bear market. Many investors want to sell their investments, expecting a loss of a small amount only. But your current demat account holdings may have the potential to offer high returns in an upward trend. Selling or asset reallocation during a bear market may lose potential returns permanently. You must prevent such negative sentiments. A Demat account’s full form is Dematerialised Account in the stock market.
Grab Selling Opportunities in the Bull Market
Investors need to sell the stocks at the right time and right price. In a bull market, investors may overlook the opportunities of selling stocks that have reached their peak. It may be due to greed. Such selling opportunities are poised for price corrections and can maximize your returns. But investors who stay invested in those stocks due to greed for more profits may lose the profitable selling opportunities.
Follow the Trend
Going against the trend means challenging the markets. Make sure that you do not go against the flow ever. There is nothing wrong with an effort to predict the market, but market timing is tricky. It requires enough financial knowledge to predict the market movement precisely. Every rise is not a bull run in the market. You can complete the online demat account opening process to grab opportunities in both – the bear and bull – phases of the market.
Focus on Risk Rather than Returns
Each stock investment possesses some risk and offers returns as per the risk involved. You need to focus on managing the risks first to enjoy returns. Stock investing is based on your risk profile. If your risk appetite does not allow you to take high risks, you should exit from your position at current profits. Do not fall for the level stock price can go up. Otherwise, you are exposed to huge risks as opposed to your risk profile.
Track Your Trades to Analyse Mistakes
Stock traders need to focus on minimizing losses to avoid failure in stock trading. Analyzing your trades and trading strategy can help you discover the reason behind previous losses. Analyze if you time the market or enter/exit your position too early. Determining such errors helps to avoid losses or failures in trading.
Money Management
In stock trading, money management means determining what part of your trading capital you can put at risk. Generally, traders do not use more than 20% of their capital on a single trade, no matter how promising it looks to you. They allow the maximum loss of 10% on a trade. A stop-loss can help you as it is one of the safety pillars of trading. You can automatically set stop-loss orders to exit a position at a lower loss percentage.
Do Not Get Involved in Big Intraday and F&O Trades without Knowledge.
Investors need to be careful while expanding their risk horizons. Bull runs may entice passive investors to explore intraday, futures, and options (F&O) trading. Many investors are ready for highly risky positions. When a good trade can magnify your returns, a single bad trade can eat up all your capital. If these are leveraged trades using margin, traders are exposed to 4-5 times higher risk. Avoid involving in derivative trading just because it is a bull rally. You should know enough about the underlying asset and its response to the market movement.
Thus, to avoid failures in the stock market, you should:
- Determine your trading goals and develop a plan of action accordingly.
- Keep realistic expectations. Do not expect that your investment will make you rich in no time.
