I will tell you my biggest mistake. Initially when I had a low capital, I was trading in lower quantities of shares say 200-300 shares per trade. This helped me in two ways –
1. I was able to control my losses.
2. I was confident about my trades.
But as I earned money and my capital touched 6 figures, I started trading in big quantities like 4000-5000 shares. Now, whenever the signal went foul or the trade failed I had to bear a loss of more than Rs. 15000(5000*3) in 1 trade as I generally keep my stop loss as Rs. 3 which was very high compared to my previous losses. This filled me with so much fear that I did not trade for about a month. One could easily see my hands shaking while placing a trade. Then I took a break of about 1 month and started again with the basics which helped me gain my confidence back. When you follow basics with proper discipline, nothing can stop you from becoming a good stock trader.
The most conquerable enemy for stock traders is negative thinking. When you are sitting in a trade and if you see your trade going against your planned direction, you start panicking and become negative about the trade. In this type of situation you will either hit your stop loss or trail your stop loss which is the biggest reason why people lose so much money in the stock market. Your mind works according to your thoughts, your thoughts shape your reality. So when you continuously think negative, more and more trades you book will give you more and more negative results. Initially, every business first incurs losses, than it reaches its BEP and then it starts earning profits. People open shops and wait for 2-3 years until they receive the response from the market and here you start thinking negative after 1 or 2 losses only. Change your thinking and you will attract the change you will desire.
RISK TAKING ABILITY
I think the best quote I can relate to the stock market is – “Test fast, fail fast and adjust fast”. Nothing great is ever achieved without an element of risk. Here in trading, I don’t go by the quote that you should take a lot of risks and go after it with everything you have got. Yes, I take risk, but every risk I take is well calculated and pre-determined. I have seen people entering into a trade without deciding their stop loss, now that’s uncalculated risk. Share market is influenced by so many unidentified factors and elements that even your strongest signals can give negative returns. When you enter into a trade after deciding your risk-reward ratio and with proper stop loss and exit strategy, you are surely to win and fail small.
Another mistake I always made while trading was placing too many trades in one session. It affected my trading very badly. I will suggest you never ever put more than 3 trades in on session. I will tell you why –
1. It increases your tax and brokerage to a good amount.
2. You will have to focus on so many things and eventually you will not be able to focus on a single trade.
Now, imagine if you incur a loss of Rs. 3000 in all the three trades that means your total loss is Rs. 9000, just imagine the total amount of brokerage and tax liability. Your total loss for the session will be more than 11000 eventually. Why lose your hard earned cash in taxes and brokerages? Keep your basics clear and take 2-3 trades per session.