Stock trading: Why do they say stock trading is not everyone’s cup of tea

By DK Agarwal

Stock traders are a tribe different from regular investors in the marketplace. They engage with the market actively, employing strategies to profit from quick price changes in stocks. A thorough understanding of the markets and behavioural finance along with personal discipline and focus is what is necessary for success in trading.

In other words, discipline, dedication, education and experience are the key ingredients to succeed in stock trading.

So, what does it take to be a trader? And what are some of the essential rules which one needs to ingrain in him/her to be able to be a good trader.

First and foremost, one needs to be very clear that trading is a business; not gambling. A trader looks at his practices as serious business. There is a thin line between betting on the market and trading. Trading requires technical analysis and application of mathematical calculations to predict market trends. Knowledge is a hidden secret to success in this domain. Like anything in life, the more knowledge and information you gain, the higher the chances of your success in trading. Rationality and reason are a prerequisite for stock trading.

There is an old saying in business: ‘If you fail to plan, you plan to fail.’ It may sound glib, but traders should follow these words. A trading plan is essentially a framework that guides a trader through the entire process in the market. The plan sets the conditions under which one would enter a trade, identify market, exit trades and manage risks along the way. Thus, knowing when to exit a trade is just as important as knowing when to enter a position.

Trading can be an emotional roller-coaster. So it’s important to remain stress-free. Many novice traders ride that emotional roller-coaster, feeling on top of the world after a win, and down in the dumps after a loss. So, the lower the overall stress level, the less likely you will feel the unwanted peak emotions when trading.

At the same time, trading can be a very boring activity at times. You need to be patient, as you wait for the right opportunities. Another golden rule to always keep in mind is: ‘never trade with the money that you can’t afford to lose.’ Trading with emergency money will increase the likelihood that you will be emotionally attached. This may put you in a risky position, and may push you to make irrational decisions.

As defeating as a loss may feel, the important thing is how we react to loss. That is more important than the loss itself. When you accept your loss and learn from it, you will find that you are able to cut your losses. Use your loss as motivation to learn and develop your skills for better trading. Admittedly, losses are part of trading; accept them, learn from them and move on.

Someone has rightly said ‘trading is not everyone’s cup of tea’. A successful trader always handles trading losses smartly. Successful traders treat losses as an opportunity to learn and improve their trading. To become a successful trader, you should try to focus on harmonising trading strategy with your risk profile.

The market is neither for you, nor against you. The market is merely what it is!

DK Aggarwal is Chairman and MD, SMC Investments and Advisors.

[Source – Economic Times]


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