Guru Purnima: The Top 10 Stock Market Lessons for Retail Investors & Traders


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The market is the greatest & one of the best teachers in the world in the field of investing or trading. In TradingYour trade log is, according to some, the best book anyone can ever read.

Trade logs are required for traders who want to keep track of their trades, and learn from them. The trader will have made every mistake possible after hundreds of trades.

Learning from the mistakes and learning from them is how you move forward.

If one is paying attention in class, the market can be a great teacher. The majority of losing traders don’t keep track of what the market tells them.

Here are the top ten lessons that can be learned from paying close attention to the market’s messages.

1. Trading is a game that involves large numbers
Many traders are emotionally attached to every trade that they make. They feel happy when a trade goes well, or they can blame themselves for losing the trade.

It is only one trade that they would make in their entire life. The strategy that has the edge will pay off in the long-term.

2. Know yourself and what you’re doing
The market is a firm teacher. It will not hesitate to whip you. You can lose all your capital if you make a mistake in just one trade.

Markets make you look inward to find the best strategies and markets. Continuous losses in volatile markets would result if a person is slow in making decisions.

It is best to avoid trading in such a marketplace. The first step to winning is knowing what and when you should trade.

3. Be aware of what you’re going to lose
Trading is about capital protection. Trade small, and limit your risk to no more than 1% of your capital, will allow you to trade the market for longer.

This would allow the law of large quantities to catch up, and traders can still be profitable after small losses.

Trading small is the best way to win the game, as long as the risk-to-reward ratio is favorable and the strategy has an edge.

4. Your strategy should not be altered frequently
After a series losses, traders tend to tweak their strategy. Expert traders advise that you should take 20 trades and not alter the strategy, as markets change constantly.

After reviewing the results of 20 trades one can adjust the parameters to allow for another 20 trades.

It is possible to determine under which circumstances strategies work and those that don’t. This will enable you to manage periods of drawdown.

5. Hard words are the only substitute
The grind has been a part of every trader’s success, financially as well as emotionally. It is rare for traders to go bankrupt.

A successful trader is someone who can get up and dust himself off and return to the market the next morning with perseverance, positive attitude and perseverance. Before a hypothesis can be applied to the market, it requires hours of labor.

Yet, many traders prefer to follow the strategies of others rather than understand them. This is why the traders who trade the most are lacking the same confidence as the traders who make the trades.

6. Never stop learning
In today’s world, one needs to run in order to stay in the same place. It is a continuous process to learn new strategies, study the markets and understand their behavior.

Traders can’t afford to relax and take a lazy approach to the markets. He must be alert and keep the same level of attention as he was when he first entered the market.

7. Stop outsourcing
Trading and investing are a personal hobby. You need to invest your time and money into trading skills.

It would be a good idea to rely on the advice of friends and family for a while, but it would not work if markets are in bad shape. One would need to take care of their finances when they go south.

8. Trading is an activity that should be treated as a business
You should treat investing and trading with the same respect that you would when starting a company. Before you invest a rupee on the market, it is important to have a business plan that includes capital requirements, sources of capital and revenue source.

Trading is considered the easiest thing to do by most traders. All you have to do is open a trading account, deposit money, and begin taking buy-and-sell calls. Because it requires you to balance both the emotional and external environment, trading is one of the most difficult endeavors a person can undertake.

9. Trading will bring more failures than successes
Trend-following traders know that the market offers them very few chances to make money. They need patience and to wait for the right trades to happen.

Only 3 to 4 of 10 trend-following traders are correct. However, they are often wrong only 3 to 4 times out 10

10. Do not be harsh with yourself
Markets are both a powerful and difficult teacher. It will not save the cane but will also not hesitate to give thanks for its blessings. You should not feel defeated after several losses.

You need to be alert and not fall into depression after losing a lot of money. Trading is like a machine that requires all parts in order to work properly.

Without sound money management and a strong mentality, a solid strategy will not work.

It has been shown that traders who have a strong mindset, money and risk management rules can be successful even when trading bad strategies.

(The author is chairman, TradeSmart.


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