In a 100m dash in which ten people participate, only three manage to bag the medals. Mathematically, only 30% of the participants manage to win. Now what do the top three people have that others don’t? Speed, stamina, better physique and of course better practice. Stock markets pose a similar situation. At the end of the trading season, only a few people (worse than the race example, only about 10%) manage to make a profit while others lose money. In fact, for one trader to be lucrative, some other trader should lose money. Because of the ‘commission’ factor, winner-loser proportion can never be balanced. How can one ‘win’ in stock markets? Through proper study, objective trade decisions and experience.
Be it intraday trading or long term investments, share market is no place for blind gambling by beginners. Before one invests large sums, one should be well versed with market trend, one should know A to Z about the new entries and should be able to sense the market mood. For these, rookies can initially trade with fake money via virtual trade websites or can seek the help of paid service providers or simply follow the path which majority of new comers tread, invest in mutual funds.
Even a person who is a prowess in share trading can stand to lose money if he lets his emotions and personal life cloud his trade decisions. And further, keen observation of professional traders during trading hours will show that they don’t talk much with other traders. That is not because they are reserved but because they don’t want other traders’ thoughts or opinions to influence their plans. How most people think will help only in KBC, in share market, in most cases, the index doesn’t go by majority’s prediction. All the advice and consult has to be after the trading session.
Learning by one’s own experience and devising plans by oneself is the best way to be successful in share markets. Experience is a virtue here. There is only a subtle difference between one who is new to stock trading and an experienced professional. The latter can explore options which the former can’t explore and predict course of action which the former can’t predict. However, that makes all the difference between a winner and a loser.
Surprisingly, thinking out of the box doesn’t work most of the time in stock markets. The golden rule is ‘ride along with the market trend’. Often novice traders, out of enthusiasm, take the route which others don’t which is an unhealthy trend. Moreover, they try to buy stocks when the market is at its lowest point and sell at the highest point. In their anticipation to reach the lowest point to buy or highest point to sell, they lose money waiting.
Some traders have their own psychology or to precisely say their own mental fix. They dilute their position as soon as they see a profit with the claim that they are not losing any money by doing so. Actually they are afraid even that profit may vaporize. But they forget the fact that it is impossible to not incur losses during a trade season and with this recalcitrant attitude they won’t have enough money to make up for the losses and ultimately end up on the losing side at the end of the season.
One strategy which many traders follow is to buy additional shares of the company whose shares the trader already possesses. While initially he purchased the shares of the company at a higher price, now he purchases the same company’s shares at a much lower price (due to market value plunge). This is method is known as averaging down. The idea behind this is that since market trends generally follow a roller coaster path, the trader expects the market trend to reverse and climb up. By buying additional shares at a lower price, the trader intends to minimize or ‘average down’ his losses by selling his position after the market climbs. This method does make a lot of sense and might work for large investors but for small scale investors, before the market changes trend he might run out of capital. And further he might be adding fuel to the fire and end up losing more if the company’s performance goes from bad to worse.