Some time ago, the CEO of Zerodha, Mr. Nitin Kamath, has publicly shared that in 1 year, over 99% of the traders fail to beat even FD returns . Yes you heard it right 99%. In this article,I will be telling you 5 common mistakes of 2023 that new investor make in share market that you should avoid.
What are some common mistakes that beginner investors make in the stock markets
Listed below are some of the mistakes that beginners make in the Stock market & end up on the losing side:
1)Failure to Accept Uncertainty
Trading, by its very nature, has a fundamental underlying uncertainty to it. However majority of people are comforted by certainty. This is because our minds are inherently trained to seek certainty.
So, when we suddenly come face to face with uncertainty, we try to find certainty & hence fail.
Take a recent example of PAYTM which was listed at a 9% discount at 1955. In next three months it is trading at 600 levels. Who would have thought this? So it is all uncertain.
Nobody knows how far a stock will rise or how long a stock would fall.
My trading career turned around the day, I accepted that Markets Are Uncertain.
2) No Strategy
A lot of traders don't want to acknowledge this but the fact is they have no idea what they are doing. Their idea of a strategy is some combination of technical indicators after watching a random You Tube video.
The best thing one can do is to learn Technical Analysis, prepare a simple customized strategy by using minimum indicators & backtest it on different charts. It is a time consuming process & may take a minimum of 6 months to 1 year to backtest, papertrade & finalize a strategy.
Always remember that except for your parents no other random guy wants you to make money & live a Billionaire life & hence nobody will share a strategy openly on You Tube, so that you could make money by applying it.
All you need is a simple entry exit strategy & you can earn well even with a 50% win rate with a proper risk management.
Trading requires hard work, perseverance & dedication & many are no longer motivated enough to give it what it takes to achieve success & fortune.
Most people enter D-street with an expectation of making easy money. However after losing a lot of money, they subsequently realize that it is not a piece of cake.
As many traders would have experienced, the stock market initially takes you to seventh heaven by showing profits, only later to pull you down into a deep abyss, all within a very short timeframe.
3) No Emotional Discipline
Most of the traders are driven by emotions rather than logic & is completely natural. In one single day, they experience all kinds of emotions: they get excited, they get impatient, they get frustrated, they get confused and yes, they become greedy and fearful
Professional traders know that acting on emotions is a sure shot recipe for failure. They understand that trading is a business and it should be treated as such.
Everyone has emotions, but it is one thing to have them and another to act on them.
What I have realized is that trading should become as boring and as rule-based as possible so that your emotions can never take over your rational brain.
4) Not Learning from mistakes
There is something called as Trading Journal, which new traders refrain from using.
A trading journal is a log that you can use to record your trades. Pro Traders use a trading journal to reflect upon previous trades so that they may evaluate themselves, and you should too!! You can use journals to evaluate where you can improve your trading. They are a useful form of record keeping of what went right, & what went wrong & what things to be avoided in future.
Its like giving a mock test before the main test. All the incorrect answers from the mock tests are worked upon so that same mistakes are not repeated in the final exam. As simple as that.
5) Giving up easily
What would you say to a first-year medical or engineering student who is thinking of quitting MBBS/ BTech. because he thought he could start earning money by that time? You’ll say, first finish your college, gain some experience and then you will have all your life to make money.
Same thing applies in the Stock Market.
Traders come to the market; try trading for a couple of weeks or months, get disappointed by initial failures and just give up. What they don’t realize is that trading is a skill, just like any other skill, it requires time to learn & master.
