Want to become the Amitabh Bachchan of trading? Avoid these 5 mistakes
However, the truth remains that one in a million becomes someone like Amitabh Bachchan or Sachin Tendulkar in their respective fields.
Fast forward to the 2020s, with the rise in popularity of the stock market, more and more people want to become full-time traders.
However, compared to Bollywood or cricket, only a small percentage of individuals end up being consistent traders just like Bachchan and Tendulkar in their respective fields.
So, now comes the crucial question, what do consistent traders do differently than others?
Most traders lose regardless of the methods they adopt. Even if all traders knew how to analyze a stock while implementing it, it is a hard line to dig.
Let’s explore how to conquer this supposedly invincible territory. Becoming a consistent trader requires a highly dynamic, alert, disciplined, and cool-headed strategist who can digest wins, survive losses, and bounce back quickly from both.
Let’s find out in detail:
1) Avoid FOMO:
FOMO represents the fear of missing something. Markets are governed by two important P’s – people and price. When the first P i.e. people start buying aggressively the second P i.e. the price starts to rise and vice versa.
When the price goes up it catches the attention of more and more people which leads to euphoria and once the stock is in a euphoric phase there is no one left to buy it
Meanwhile, people who bought earlier in the trend start taking profits off the table, which later creates panic among people who bought late in the trend, and the domino effect starts to drive down the costs.
2) Restrict and learn from losses:
Jesse Livermore in his brilliant book, “How to Trade Stocks” mentioned, “Profits always take care of themselves, but losses never do. The speculator must insure against considerable losses by taking the first small loss.
He must be his own insurance broker, and the only way for him to continue his business is to protect his own capital.
3) Results of any exchange:
There are five outcomes of any trade; the first is huge profit, the second is tiny profit, the third is breakeven while the fourth and fifth include small and huge loss.
If losses are unavoidable, we should limit them as much as possible by the fourth outcome, i.e. a small loss. The fifth outcome, i.e. a huge loss, should be avoided at all costs, because avoiding it will help you stay in the game longer, and moreover, we should learn from these losses! Similar to a toddler, learning to walk; at first he stumbles and even falls, but eventually learns to walk.
4) Identify your advantage and execute perfectly:
A trading advantage is defined by Investopedia as “a technique, observation, or approach that creates a cash advantage over other market participants.”
There are no free lunches in life. Similarly, there are no easy gains in stock markets; therefore, to win in the market, it is important to have systems with positive expectation, where the probability of winning is greater than that of losing.
Remember why companies love
and Parle-G have become gigantic because they have an advantage over their competitors, ie a good distribution network. So, once you have identified your edge, execute it perfectly.
5) Being disciplined is the key:
Have you ever noticed how disciplined professional athletes are? They have a perfect diet as well as an exercise regimen, which helps them perform well; if they don’t, they fall by the wayside.
Therefore, being disciplined while trading is also important; for example, you need to know when to trade and when not to.
Also, once you start making profits, chances are you will become complacent.
Remember that we can be great traders one day and poor the next if we stop following our plan, because the market can rip your many years of earnings away from you in minutes. Therefore, stick to your plan and enjoy it.
I am sure this article will help you ride out the turmoil and master the apparent madness called the market.
So let’s get started!