People very well know that savings accounts and government bonds provide very low interest rates compared to other investment means like mutual funds and private company fixed deposits. Still many prefer some of the former options because of the security quotient. Greater the interest rate, greater is the risk involved. And share markets are capable of providing very high rates. An experienced professional trader can make millions in share trade while at the same time one may also lose billions.
In stock trading, for one person to win, someone else has to lose. So it boils down to a simple clash of wit and acumen. In addition to this, every trade also drains resource in the form of commissions and trading fee. One must bear in mind that at the end of a trading season, there are both winners and losers. In fact, factual data says that only 10% of the total number of traders are actually lucrative at the end of the trading season.
Lack of discipline, hasty decision making and lack of experience are some reasons why stock traders often lose money. Lack of discipline in the sense, when the market is looking abysmal and the stock values are plunging, short sells are more advisable. Instead, if a trader buys stocks heavily expecting the stock prices to increase soon he is likely to lose money. Hasty decisions without proper consult can surely lead to failure. For beginners and inexperienced investors mutual funds are more advisable in turbulent markets. Even in hasty day trading sessions, experience can come in handy. And finally, a proper study of the market has to be carried out for a person to succeed continually in the market.
Even the time of trading can have a great impact on the result. Trading during the first half an hour or one hour of a day is stimulated by traders’ prejudices, overnight actions and holding of positions for day trade by amateur stock traders (who may totally be on the track). So it is better for the stock traders to stand back and let the dust settle for the first half an hour before engaging in trade. Going by the market sentiments is requisite to successful trading. When the market sustains at a high level and the indications are that it is likely to go down, short sells are advisable. However, if the market oscillates rapidly, it is a clear warning to stay away from it. While there are possibilities for high returns, they are quite rare too. When inexperienced traders consider even small possibilities to be lucrative and invest above normal, they are bound to incur losses.
Stubborn traders who adamantly hold their positions even in unstable markets end up as losers. For example if a trader has a mental fix to sell his shares when the stock touches Rs.2000, if he suspects a downward trend, he should not be loath to dissolve his position immediately so that he can reap at least a partial profit. On the contrary, if the market is showing a climbing trend, the stock trader should not liquidate his position prematurely simply because he had a mental fix or because he wants to taste the ‘profit winning’ feeling.
Sometimes even traders with great insight in stock trading and trading acumen might flounder due to emotional reasons. Let’s say a stock trader has just received his divorce notice from his wife. He is terribly upset and in that dejection he sells his position precipitously on a day when all the stocks are booming. He ends up with only a meager profit when he could have reaped much more. Personal life and emotional highs should never influence a stock trader while trading.
Finally, a stock trader who lets other traders cloud his thoughts can end up losing money. A trader should avoid talking with other traders during the trading hours for what majority of others think or predict might not materialize. One can consult and get advice from professional traders may be at the end of the day, after the trading session but not during the session. If a stock trader definitely wants to know about others’ opinion, he should be mentally strong so that he doesn’t deviate from his planned course of action.