New Trader Story
Before moving on to the mistakes made by a new trader I want to share a story with you. There is one thing in this world that every person wants more than anything else. Yes, you guessed it right, that’s money. There are various modes of earning money, but in general, the easiest one is to get a job and start earning, this is what we all are told by our parents specifically by the parents who did it till their retirement.
There are other ways of earning money like businesses, websites, YouTube, software etc, etc, but I am focused on the people who have a job. Probably they don’t have the financial stability or family backing to even experiment by starting a small business as everyone is afraid of failure and they don’t want their family to be in a situation of bankruptcy (and this is a very good thing which can help in trading which is risk management but most of us don’t understand it clearly).
Let’s take the example of a person in India who has earned a professional degree or diploma and started a job at 25K or so which is a decent sum while starting a job. The person with time and growth in terms of increments and promotions reaches a position where he wants to make more in parallel to his job but struggles to find an easy way to earn money in parallel and gets in touch with his colleagues who are trading and earning good amounts of money.
So, this route seems quite easy and he starts trading with an X amount of money initially, beginner’s luck and he gets X + 20%. Isn’t that crazy, 20% return in a few days and he starts with bigger amounts of money and again he gets good returns. He thinks he has mastered the art of making money from the share market but soon he gets to know that his portfolio is down 50% in a few weeks and has lost almost all the yearly gains in a few days. This is the story of a normal person’s way of approaching the share market in brief.
Mistakes made by a New trader
There are a lot of mistakes made by a new trader. So, let me share some of the critical things that I have experienced in my trading journey from 2014 onwards, started with super bullish markets and then saw the most bearish market of the decade in 2020, minor corrections are always coming from time to time but market mostly is flat to up trend. A few of the pointers that highlight the mistakes made by a new trader are as below:
- Gain knowledge before trading.
- People get wiped out and never come back to the markets saying it’s gambling.
- Follow the best traders around the world and analyze their styles.
- Listen to top trader interviews and their life stories.
- Don’t buy courses/paid memberships of the so-called financial gurus unless they prove it (Zerodha Verified P&L statements) and that too consistently.
- YouTube can be used for gaining a ton of knowledge, so use it (Shorts don’t help, they short your portfolio).
- Start with a low capital experiment with Large caps and analyze your personality.
- When you are new in the market you don’t know if you entered a bull, bear, or sideways market. So trading with low capital will never make you bankrupt even after making multiple mistakes.
- A cool and patient guy can be a good long-term investor, but a guy with a jumping baby mind can try short-term trading as he won’t be able to hold a position long. I don’t recommend Intraday to people who do jobs as it’s a full-time job and the toughest form of trading which needs mastery.
- Psychology is a key to trading, so don’t trade with emotions like overtrading, greed trading, revenge trading, etc.
- Stick to a disciplined plan a day before the trading day with rules like entry, exit & targets. Trade like a robotic machine that knows only 1 thing to follow the rules.
- Don’t try thousands of strategies, 1 or 2 are enough if you have practiced them a thousand times.
- Trade in large caps for at least 1 year.
- One of the most common mistakes new traders make is failing to use stop-loss orders.
- Even after doing all of the above you fail, if passionate about markets then try again otherwise switch to mutual funds and enhance your skills in the job that you are already doing to get a much higher salary.
The above points cover most of the things that I have learned from my mistakes in my trading and investing journey. I hope the above points related to the mistakes made by a new trader would help someone trade or invest better. I will add more points to the list as and when they come to my mind, but this list can still be treated as a checklist before entering the money ocean.
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Happy Trading and Investing!!!