A record number of new traders and investors emerged in 2021. Despite the recent correction, despite the Nifty50 gaining 23 per cent over the year, the markets are still largely in a bull market condition. However, in the long run, the stock market is one of the most difficult places in the world to make easy money. Due to social media, a large number of people have turned to the market and they find trading very easy. But you will be surprised to know that less than 1% of active traders have been able to earn more money than a bank fixed deposit in the last 3 years.
Strict ‘stop’ required for your time and money
According to a report in ET, the smartest people have one thing in common, they all know when they have to leave. Be strict with your stoploss, that is, set a limit on the amount of loss you can take and set a time period to turn in profit. These things become more important if you are a beginner. Jack Schwager once said, “You must make sure that you cannot lose more than 1 per cent of your trading capital in a trade.” The more you lose in a trade, the more likely you are to make an impractical move.
go with the trend
A common strategy for beginners is to buy stocks at 52 week lows. They understand that the stock will make a comeback, but it has already fallen significantly. However, in actuality stock prices tend to trend, tend to move in one direction for a longer period of time. The best thing to do is to trade in the stock when it is trending up and sell when it is trending down.
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Averaging downwards means a waste of money
The disposition effect is the tendency of people to sell their shares when they go down after a buy or hold. Most of the traders are affected by this and they should do the opposite – subtract the losers and buy the winners. Expectation is not really a trading strategy. A steep drop in the stock price may work once, but it is a bad strategy in the long run. Buying a falling stock is certainly an attempt to correct a trading mistake, which can be avoided by placing a stop loss.
Leverage Causes Big Losses
Even though it’s easy to get attracted to the promise of big gains using leverage, it’s a bad trade to jolt the account. Mainly because of this people stop trading. Avoid it as far as possible.
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Avoid Stock Tips
There is no dearth of people claiming to make you rich with stock tips, but it is rarely effective. Following such advice makes the situation worse. So even if a good advisor is found, only then they are not able to make money. However, the biggest danger is that most of the tips are social media and other groups, which are kind of scams.
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