The Psychology of Mastering the Trading Game

What are the top three things a trader or investor must never do in the market?

The top three would be:

1. Avoid Overtrading

Overtrading is one of the biggest mistakes traders make, and it often stems from emotions. No one has a 100% success rate in trading or investing. For example, someone might have a strike rate of 60% or even 70%, but inevitably, you will lose money three to four times out of ten.

Typically, when traders face losses, they try to recover them by becoming more aggressive, leading to overtrading. This mentality can further amplify losses. So, the first and most important rule is: don’t overtrade.

2. Avoid Overleveraging

Another common pitfall is overleveraging. When traders try to recover losses or increase their profits, they often increase their bet size, which can expose them to much higher risks. This approach is not sustainable and can lead to significant losses.

To manage your risk effectively, always avoid overleveraging your positions.

3. Avoid Averaging Losing Trades

Averaging losing trades is another mistake to steer clear of. For example, if you buy an option at a certain price and its value drops by 20%, some traders buy more. If it drops by 40%, they buy even more. This approach only compounds losses.

Instead, focus on averaging winning trades. Add to your positions when they’re performing well, and exit all positions if the trend starts to reverse. This way, you can ensure a net profit.

In Summary

The top three things to avoid in the market are:

• Overtrading
• Overleveraging
• Overaveraging

By avoiding these common mistakes, you can manage your risks better and improve your chances of success in trading or investing.

Understanding risk-to-reward ratio is crucial. To succeed in trading, your profits must be bigger than your losses. Watch this video to learn how important it is to have a good risk-to-reward ratio to be successful in trading

Learn about investor protection initiatives in the stock market with NSE experts in this informative video.

Watch this informative video featuring experts from ICICIdirect to learn about commodity trading on MCX

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What is Intra-day trading?

Intraday trading, is the act of buying and selling the stocks within the same day. Traders buy and sell stocks during regular market hours and close their open positions before the market closes.

How to pick stocks for Intra-day trading? (5 Simple Strategies)

1. Trade in liquid stocks

   Liquid stocks are traded in large volumes and allow you to enter and exit positions as needed.

2. Pick stocks with medium volatility

   Pick stocks with a reasonable amount of movement within a day but use the stoploss feature to minimise potential losses.

3. Buy stocks that you understand

   Trade in stocks that you have followed, tracked and know about. Avoid trade in stocks that you have no knowledge of; or which are manipulated or move based on rumours.

4. Avoid penny stocks

   Avoid trading in stocks which are available at very low prices i.e. in single digit prices.

5. Make focused investment based on research

   Don’t trade in too many stocks. Do your research and focus only on a few stocks that you can track and review easily.

Pre-requisites for intra-day trading

Have a trading or demat account and a bank account.