This article is for people who do trading mistakes again and again. I have done them too. Please avoid these mistakes and you will save a lot of money. Please read the warnings carefully.
Online trading is so easy , buy low and sell high right?. But it is easier said than done. About 90% of traders lose money in share market and considered as bad luck. But it is not the case. From this post you will learn the most common mistakes and how to avoid .
1) Selection of High brokerage Stock Broker :
To make it simple there are two type of brokers a)full-service brokers and b) discount brokers. Full-service brokers offer many more services but higher brokerages. Discount brokers provide lesser services but cheap brokerages. Selection of brokerage is the first investment decision an investor takes for successful profitable trading. I would like to say If you select a broker with high brokerage then it would create a hole in your investment which will cost a lot a future.
My suggestion is to go with discount broker which have brokerages based on trade not per lot. Eg if u buy 1 share of Infosys or 1000 lot of Infosys the brokerage remain constant.
2) Follow Tip Providers:
Never buy a share because your friends or family members told you or Never buy a share because tip provider gave free hot tip. Do your own research, and buy shares of great companies which you have heard from childhood ( Blue chip stocks)only on dips in two or three installments . Hence build a profitable portfolio for long term. You may have to hold them, but eventually you will be able to get out in profit.
3)Putting all your eggs in one basket
Never put all eggs in one basket. Diversify the sectors( IT, Pharma, Automobile, Infrastructure, Agriculture) and diversify the asset class( Gold ETF, Stocks, Mutual Fund, Real estate, Commodity). Diversify among the above mentioned sectors and asset classes for balance and mitigating the risk.
Over trading is a suicidal attempt which newbies are doing to earn quick cash by being too much optimistic. and hence a single wrong trade will blow the account and will end the trading career.
The thump rule of capital management is if you have 1 Lakh set aside for trading , then risk only 0.5% to 1% of total capital in a single trade. It means one wrong trade will lose only 1% of capital.
5) Emotional Trading
A successful trader is one who can control the emotions. Just plan the trade and trade the plan.
Sreekanth Kallayil is the founder of SmartLazyTrader. A passionate trader and a curious student, sharing his experience and providing suggestions to avoid pitfalls to become a successful trader.