In most cases, when day traders get caught up trading in the share market, they tend to forget critical factors. Even as trading calls for commitment, focus, discipline and information, it is even more crucial to internalise these strategies to prevent mistakes.

Here are some colossal trading mistakes that strike experienced and new traders in the Indian stock market. It can help to look into the recommendations to assist you in discerning the errors and correcting them.

• Avoid bottom fishing – Trying to catch a stock as it hits the ground or reaches its lowest point, — known as bottom fishing — can be a huge mistake. Simply put, in a bear market, share prices go down considerably more than traders expect or want. Many times, it may appear that the stock will recover if it is seen that traders remain interested in it. However, sometimes the stock begins to decline rapidly once the momentum crowd loses interest. Hence, when value investors start to look into such stocks, those stocks could start to strengthen; however, those stocks could also spend a long time in a trading range.

• Stay away from timing the top or bottom – Tops and bottoms rarely take place when you expect them to. In a bull market, enthusiastic traders and investors continue to buy specific stocks even after it does not make any fundamental sense to do so. Hence, shorting a stock that is trending higher sometimes may not be feasible, even though its price could be beyond rational. Rather than timing the top, it can help to look for reliable trading signals to make the right decision.

• Do not try trading against dominant trends – It can be an expensive mistake to trade against the prevailing trend. Sometimes mistaking the trend as you concentrate on the chart in front of you could become an error. You could witness a promising trend taking place with a pullback on intraday charts. However, what if it is a consolidation rally during a strong downtrend rather than what you anticipated on the intraday chart? Like a domino effect, the promising fullback could be the beginning of a fall on the daily chart. In this situation, if you continue to buy, thinking that the uptrend is around the corner, your position could be flooded by a deluge of sell orders from traders who have correctly identified the significance of the long-term stronger trend.

• Do not attempt at improvising without preparing – Sometimes traders look at winging it. Perhaps, someone on business television recommended that a particular stock is good and is expected to go even higher. However, although that might be a good piece of information, it may not necessarily be the right reason to make a purchase today. Instead, you must look to executing your plan based on your devised strategy and planned trades. Look for signals that can trigger your trades rather than second-guessing yourself.

• Do not consider trading as personal – While a losing trade could mar your trading account, you must not take it personally. Although a bad trade could bring down your net worth, it must not hamper your self-esteem.

• View trading as a business – Look at your stocks as an inventory and not something to be emotional about. At the end of the day, the stocks in your portfolio are there to sell at a profit. Look at your business model with logic rather than emotion.

• Do not sustain significant losses – Successful trading depends on how adept you are at handling losing trades. If you get rid of falling stocks quickly, you can become successful in trading. However, if you continue to hold on to losing positions, you could end up losing much more money than anticipated, and it could put you out of trading in the stock market. Avoid indiscriminate usage of margin, but rather apply it carefully to magnify your profits.

Takeaway

Trading is not an easy task, which can actually be a good thing. It involves thorough analysis, practice and constant learning. Trading in the stock market can be a great test of keeping your emotions under control. Now that you know the mistakes you must avoid, open a demat and trading account with a well-established and reputed stockbroker such as Kotak Securities and enhance your financial future.