Trading for the very first time can be daunting to new investors and mistakes are part of commodity trading in India. However, even if you are new to the trading world, these mistakes can be avoided by keeping abreast of the market trends and the various resources that provide you with insight into the stock market. Opening a trading account is an investor’s first step into the world of stock trading. From hereon, the investor must stay well-informed and avoid making mistakes that will incur losses.
5 Common Mistakes to Avoid When Trading
To help you steer clear of making mistakes that might lead to potential losses for you, here are 5 of the most common mistakes that investors usually make.
- Ignoring the Basics
Traders must become familiar with the basics of the stock market. This could be the specific words used by traders and stockbroking companies or the processes involved in buying and purchasing stocks or shares. There are also specific metrics that have to be kept in mind. These include:
- Return on equity
- Book value
- GP Margin
- Dividend yield
- Interest Cover Ratio
- Earning Yield
- Debt to Equity Ratio
- Market Capitalization
- Margin of Safety
- Price Earning Ratio
Investors need to know how to calculate these metrics before they proceed into the world of commodity trading in India.
- No Investment Plan in Place
An investor, going in blind without an idea about the kind of investments they need to make is the worst mistake. An investor must have a proper plan in place that includes:
- The amount of capital they are willing to invest
- The overall long-term/short-term/mid-term goals that they might have
- Establishing a risk profile that helps an investor determine how much they are willing to lose if it comes to that
- The capital invested in various equity investments that include shares or derivatives
- Not Cutting Losses Quickly
It is important to begin your trading journey by setting a predefined point at which to exit a trade to minimize your loss. If investors continue to hold on to losing positions hoping that the market will pick up is simply an emotional decision and not a practical one. As a result, investors could lose a larger portion of their capital incurring more losses. Investors do not have to be right all the time. A good investor will always make a decision that helps manage risks and retain capital to help with a trade done on another day.
- Lack of ability to adapt to market conditions
The stock market is constantly influenced by factors like geopolitical events, company reports, elections, etc. This is why traders need to be able to adapt and mould their investment strategies accordingly. Following the same strategy all through, for every trade, will only lead to losses. The market trends keep shifting and an investor’s trading strategy should be flexible enough to shift accordingly.
- No Risk Management Provision:
Another huge mistake that traders usually make is not taking the importance of risk management into account. Keeping an eye out for profitable trades is only one aspect of conducting a successful trade. However, this can lead to neglecting the potential risks involved. This is why it is important to consider the risk-reward ratios of a trade in mind. This helps implement stop-loss orders on a trade if it goes against the trader’s best interest.
Conclusion
trading in India is not an easy feat. The stock market can be quite volatile at times. Many variables need to be considered and as a first-timer, investors can very well make certain mistakes that might incur losses for them. However, with the right tools, like research materials and information about market trends, investors can steer clear of making mistakes and incurring heavy losses as a result. On top of that, if there are multiple stocks you have invested in, a demat and trading account will come in handy to organize and monitor them all.
