5 mins read . 23 Dec 2022
There is a joke in the stock markets that there are 3 types of players. There are traders, investors, and then investors by default. Let me explain. Investors by default are those who started out as traders but when the price moved against them, they decided to hold on to the stock and became investors by default. Ideally, as a trader, if the price movement goes against you, you should terminate the position with a stop loss and then take a fresh view. That is because as a trader you trade the present not the future. That is the job of an investor. The trader trades on trends already available in the market.
One of the simple rules in the market is to never try and outsmart the market. What do you interpret if you buy and the market falls or if you sell and the market rises? Don’t blame the market, instead take it as a subtle message from the market that you are missing out on something crucial in your analysis. Many traders try to go contrarian and turn against the tide of the market. That is the primary mistake. As a trader, you always trade the present; which means the existing conditions. It is not your job to anticipate conditions.
As a trader, do you try to predict whether the Nifty will go up or down or whether markets will find a bottom or the top? You are losing focus. As a trader, your primary job is to interpret the existing trend in the market and trade within these limitations. A trader does not make money by anticipating the market. He makes small profits by understanding the undertone of the market and then enhances ROI by churning money aggressively. Check momentum and don’t bother about medium-term direction of the market.
It is not as complex as it appears to be. Here are five basic rules you can use to ensure that as a trader, you are focused more on what is happening in the markets.