Most Popular Trading Mistakes in Commodity And Equity Markets

Most Popular Trading Mistakes in Commodity And Equity Markets
1. Trading for excitement & thrill Not for profits.
Many traders consider the stock market as casino and trade for thrill and fun only. As soon as one has a losing trade, he wants to quickly make back the lost money. He thinks about the other things he could have done with the money, regret taking the trade and want to recover as quickly as possible. This, in turn, leads to further mistakes. Be patient and wait for the next high probability opportunity. Don’t rush back in.
2. Trading with a high ego.
Many individuals who have remained highly successful in other business ventures have failed miserably in the trading game. Because they have a fairly big ego and thought they couldn’t fail. Their egos become their downfall because they can not except that they would be wrong and refuse to get out of bad trades. Once again, whoever or wherever has anyone come from does not concern the markets. All the charm, powers of persuasion, number of degrees & diplomas of business management on the wall or business savvy will not budge the market when you are wrong.
3. Three 4-letter words that will kill you! HOPE–WISH–FEAR–PRAY
If you ever find yourself doing one or more of the above while in a trade then you are in big trouble! Markets have own system of moving up & down. All the hoping, wishing and praying or being fearful in the world is not going to turn a losing trade into a winning one. When you are wrong just use a simple 4-letter word to correct the situation-GET OUT!
4. Trading with money you can’t afford to lose.
One of the greatest obstacles to successful trading is using money that you really can’t afford to lose. Examples of this would be money that is supposed to be used in any other business, money to be paid for college/school fee, trading with borrowed money etc. Ultimately what happens is that when someone knows in the back of their mind that they are risking the money they can not afford to lose, they trade out of fear and emotion versus logic and no emotion. If you are in this situation It highly recommends that you stop trading until you earn enough to put into an account that you truly can afford to lose without causing major financial setbacks.
5. No Trading Plan
If you consider yourself a trader, ask yourself these questions: Do I have a set of rules that tell me what to buy, when to buy and how much to buy, not just for the next trade, but for the next 10 trades? Before I enter a trade, do I know when I will take profits? Do I know when I will get out if I am wrong? These questions form the first part of a trading strategy. There simply cannot be any expectation of success if we can’t answer these questions clearly and concisely.
6. Spending profits before you make them.
Nothing is more exciting than getting into a trade that blasts off and puts you into a highly profitable situation. This can cause major problems, however, because this type of trade puts you in a highly euphoric state and leads to daydreaming about the huge profits still to come. The real problem occurs as you get caught up in the daydream and expectations. This causes you to not be prepared to get out as the market reverses and wipes off all your profits because you have convinced yourself of the eventual outcome and will deny the reality of the situation. The simple remedy for this is to know where and how you will take profits once you enter the trade.
7. Not Cutting Losses or letting Profits run
One of the most common mistakes made by traders is that they let their losses grow too large. Nobody likes to take a loss, but failing to take a small loss early will often result in being forced to take a large loss later. A great trader is not someone who has never had a loss. Great traders have made many losses. But what makes them great is their ability to recover quickly from a string of losses.
Every trader needs to develop a method for getting out of losing trades quickly. Research and learn to apply the best methods for placing protective stoploss orders.
The only way to recover from many (small) losing trades is to make sure the winning trades are much larger. After a series of losing trades, it becomes difficult to hold a winning trade because we fear that it will also turn into a loss. Let your profitable trades run. Give them room to move and give them time to move.
8. Not Sticking to your plans & Changing strategies during market hours
If you find yourself changing your strategy during the day while the markets are still open, be mindful of the fact that you are likely to be subject to emotional reactions of fear and greed. With rare exception, the most prudent thing to do is to plan your trading strategy before the market opens and then strictly stick to it during trading hours.
9. Not knowing how to get out of a losing trade.
It’s amazing that most of the traders don’t have any clear escape plan for getting out of a bad trade. Once again they hope, pray wish and rationalize their position. It must be kept in mind that market does not care what you think. It does what it does and when you are wrong you are wrong! The easiest way to keep a bad trade from going really bad is to determine before you get in, where you will get out.
10. Falling in love with a stock (Just Flirt).
Many traders get fascinated by just a stock or two and look for opportunities to trade in those stocks only ignoring the other profitable trading opportunities. It is because they have simply fallen in love with a stock to trade with. Such tendencies can be suicidal as for as trading is concerned. It may cost any one dearly.


Investment Rules

‘Investments’ is a sacred term for individuals. For many, investing means a kind of ‘compulsory’ savings from one’s earnings and getting lumpsum money later.
However, there is a lot more to investing than just that. Investing falls within a broader gamut of financial planning. It requires considerable thought and groundwork. Here, we have outlined some important guidelines to be borne in mind while planning your finances.
1. Do your homework
Before investing your money, ensure that you have done your homework well. It is ‘normal’ for sales pitches to be aggressive. Most sales executives are mainly interested in ‘commission earned’ or ‘business garnered’, which reflects in their monthly targets. That is why one only gets to hear the ‘best case scenario’ from agents/sales executives.
A lot of sales agents/consultants try to exploit the individual’s vulnerability and lack of knowledge while making a sales pitch. For instance, how else can you explain so many individuals in the low-risk category investing in high-risk ULIPs?
Or why term plans, in spite of being the cheapest form of insurance, are still not bought by most individuals? Or why mutual fund IPOs find so much favor with investors even when there is no fit in their portfolios?
One should understand his own profile in terms of income, risk appetite, and future plans and only then, make investments in tune with the same. Individuals need to know what benefits different products offer and how they fit into their financial portfolios before taking a call on investing in them.
You must listen to advise from different quarters but the final decision should rest with you alone after a careful analysis. After all, it’s your own hard-earned money.
2. Keep your eyes and ears open
Keep your eyes and ears open at all times for any investment opportunity that comes your way. The opportunity could be by way of changing market scenario or new product launches. Individuals shouldn’t lose out on any opportunity just because they didn’t know it existed.
Of course, this involves a bit of updating yourself with latest product trends, market conditions and changing economic scenario. This way, you will not be completely at the mercy of the consultant/agent to provide you with investment-related information and solutions.
3. Involve yourself
While buying any financial product, ensure that you have involved yourself at critical stages. For example, while taking life insurance, see to it that you personally fill all the details in the proposal form.
Insurance agents many times used to, themselves, fill up details like the height and weight of the insured, his age and medical history among other things, based solely on their own judgment. They merely asked the individual to sign on the form at the end.
What individuals don’t realise is that this can lead to rejection of claims at a later stage if discrepancies are found in the proposal form. The insurance company cannot be faulted for rejecting such a claim. It is a shortcoming on the agent’s part who should have requested you to fill the form yourself, else fill it himself after verifying your details.
All the necessary medical tests should also be diligently given. As mentioned earlier, any ‘false claims’ might lead to rejections at a later date.
4. Inform your near and dear ones
This is especially true in case of life insurance. Inform your near and dear ones as soon as the policy is bought. If your spouse and/or parents know that you have a life insurance cover wherein he/they are nominees, they will be better placed to follow up with the life insurance company for the claim proceeds should something happen to you.
Typically, life insurance should not be so sacred that you don’t broach the topic in the family. All related (and affected) parties must know exactly what needs to be done in your absence.
5. Maintain a logbook
Always maintain a logbook of your life insurance policies/investments. Individuals can and do have a variety of investments ranging from life insurance (endowment, term plan, ULIPs) to mutual funds and PPF/NSCs. A logbook should contain details about the same.
Over an extended period of time, it becomes difficult for one to remember or track investment details like maturity date, maturity value and rate of interest. This logbook will take care of that problem. Of course, it goes without saying that for the logbook to be really effective and useful, it should be updated periodically to reflect investments and redemptions.
This logbook should also include details of an individual’s liabilities like home loans, personal loans, the amount outstanding on such loans, the EMI and business liabilities (in case the individual runs a business) among others.

Details of the logbook should also be shared with your dependents (spouse, children, parents). An important reason for making a copy is, in case of an unfortunate eventuality, the spouse knows his/her exact financial status. Also, one wouldn’t want someone to come out of nowhere one fine day and stake a claim on the family’s assets based on some ‘fictitious’ liability.