Stock trading has become an increasingly popular activity for individuals who want to earn significant money in less time. Although Day trading is an excellent source of revenue but it can also be bad enough to make your bankroll zero in no time.
Stock trading is not anything more than gambling if done without knowledge about the financial markets. Usually, people get addicted to trading and lose all their money. Trading is only beneficial if done properly. However, if you take care of certain points, you can make significant money from stock trading without getting addicted.
Understand the Risks
For some people, trading is very straightforward, they only have to press one button, buy or sell, and they make money if they hit the right button. But, actually, they are not trading; they are gambling. Trading includes many risks that you should know before entering into trading world. Some most common risks are:
• Market risk
• Interest rate risk
• Company risk
• Regulatory
• Inflation
• Taxability
• Liquidity
Beginners always see huge winnings, avoiding the amount they can lose if trade is not in favor. A person will never addict to stock trading if he uses proper analysis methods. Generally, there are two ways of analyzing the stock price such as technical and fundamental analysis.
Fundamental analysis is used by long-term traders who want to invest their money in a particular stock for a longer time. Traders check out the assets and liabilities of the company to figure out where it stands.
But on the other hand, technical analysis is completely chart based. It is usually used by short-term traders who either place a trade for a few hours or days. In this, the stock price is predicted by watching the price history of that stock. In the stock market, it is usually assumed that a stock will surely come to the level where it was before.
There are various things that traders have to check before making a trade. Everyone knows that financial markets are almost impossible to predict; therefore, only invest the amount you are ready to lose.
Make a Strict Budget
Before starting stock trading, make a budget and stick to it, do not cross it, no matter how good the trade is. To avoid the addition of trading, set a fixed number of trades, you must make in a day. Also, pre-decide the risk per trade.
Undoubtedly trading needs time, but it doesn’t mean you can watch stocks all day and night. If you do so, you will take time to get addicted to it. Make a timetable and only give time to stocks that you have decided. Make sure not to trade for more than 2 hours to avoid addiction.
Re-evaluate the Loss and Profit
Make sure to invest some time to re-evaluate before making a trade. Capital protection should be your priority if you want to make trading a career. When you enter the trading world, you will notice that most professional players only evaluate the loss they can have in a particular trade; profit is always secondary for them.
Avoid Impulse Trading
You may be surprised to know that 95% of people lose their money in intraday trading, which happens because of impulsive trading. They make trading decisions immediately without thinking or analyzing the stock. In the end, they end up losing all their money.
Also, avoid the stocks having high volatility because one big candle can make you lose a lot of money in day trading. Analyze the stocks using the methods mentioned above and make the trades accordingly. In addition, the more you take care of your trading decision, the more profitable trader you will become. Also, it will help you to avoid addiction.
Don't make trades emotionally
Strictly avoid making trades emotionally. For example, you have an emotional connection with reliance; it doesn’t mean you can buy its stock without any search. Usually, beginners lose money in trading because they make a trade based on their emotions.
Suppose you have made a trade and achieved a target according to the trading plan, so exit the trade immediately. Instead of holding the position, thinking it may go up. Usually people who control their emotions make significant money from trading.
Take break after each big win and lose
Taking a break is essential to control your emotions. Most professional traders take a break after each good and bad trade. This is because a good trade can make you over-confident, which makes people lose money. At the same time, a bad trade can create a feeling of chasing losses, another big reason for losing money in the stock market.
If you don’t want to get addicted to stock trading, then consider taking a break once a month. Go on vacations and start trading after coming back with a relaxed mind. Forget all the losses and profits of past trades and make new trades with a fresh mind.
Exit Strategy is Must
Remember, exit at the right time is equally important to entry for making regular and consistent profits. You may lose all your gain if you do not exit the trade on time. There are only two ways to get out from a trade: taking a loss or gaining.
When talking about an exit strategy, two terms are commonly used: take profit and stop loss. You must have an exit strategy that tells you the right time to get out of the trade. Follow your trading plan and get out of the trade, regardless of whether you gain or lose. One can make good money even if they have a 50% success rate.
