Read this article to know 5 important things to keep in mind while trading. Trading is a damn serious business. It is not a game in which you start one day and start making money right away. It is often said that almost 90% of the people fail in trading. Not surprisingly, the reasons for the failure are common among these people. Poor trade management, excessive risk taking and poor risk management are the prominent ones. The foremost reason why most traders fail in trading is the mindset with which they come in trading business.
Many people start with unrealistic expectations. To give you a specific example with numbers, one opens a trading account with a brokerage firm with an initial capital of 1, 00,000 rupees. Now from the first month itself he starts to expect to make 20-25% of the account. This is unrealistic expectation. As said earlier, trading is a business. Do you know any other business which gives you such high returns right from the start? This business is no exception.
Once you start with the unrealistic expectations, you keep making mistakes which make for a complete recipe of a failure. When you start with an unrealistic expectation, you are most likely to miss your expectation. Even a seasoned trader may not be able to achieve such kind of returns. You don’t just miss the target but also lose money in the process. You start to feel agitated and trade excessively to make up for the loss. Overtrading as you might know is suicidal.
Control the Urge of Trading
There are various facets to overtrading. When you are winning, you keep trading even more out of greed. Many start taking trades which are low quality trades. Trading is a peculiar business. You are not required to trade everyday to make consistent money from it. As few as one or two trades a week can make a lot of money for you if you plan it properly.
Another great way to control the urge of training is to practice online trading on a Virtual Stock Market Simulator. We have written a very nice example and case-study about why you must start your trading journey with virtual trading.
There is another type of overtrading which is called revenge trading. When you lose money, to get that money back from the markets, you trade out of revenge. When you overtrade, you trade out of emotions and not logic. Whenever emotions play a role in the decision making, you make poor trading decisions. You can not argue with the market. You can make money only by going with the market.
Follow Stricter Risk Management
Surprisingly many traders are unaware of the concept of risk management in trading. Risk management is one of the most important aspects of trading. One has to stay in the game of trading to be successful at it. When you put a certain amount of money in your trading account, don’t put all of the money in a single trade. A rough rule of thumb is that you should risk in only 2% of your account size on any trade. You are not going to win all the time. So when you put only 2% on the table, you are not losing a big portion of your account if a trade goes against you.
Success in trading is not determined by few winning trades but it is determined by your ability to win consistently over a period of time. When most novice traders start trading, they put in major portion of the account on a single trade. If a trade goes against them, it hits very hard on their account. Only a handful trades are enough to wipe out the account.
Consistent money can be made from trading if it is done in a proper manner. If someone is unable to make money it just means that he has not done it in accordance with the basic principles of trading. If you want to be a successful trader, start with the correct perceptions. Don’t jump into the markets with real money. Start with demo trading, understand the principles of trading and then trade with real money.
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