A small-time stock trader is always scared about burning a hole in his pocket; especially at times of market volatility. Amit Lalan, Director, Upstox lays out 10 basic rules which can help cut trade losses.
- Protecting capital:
You need to be obsessive about protecting your capital and the first step to achieve this is to figure out how much you are willing to lose per day, per week, per month, and overall. This should be your guiding principle in trading.
- Know when to stop
If you are not a stop-loss person, then trading is not for you. Defined, stop loss is an instruction where the investor instructs the broker to sell the stock if it drops to a certain price. It reflects the loss you are willing to accept on a trading position; whether it is trading long (buy) or short (sell). The best of traders always trade with a stop-loss in mind.
- Think like a trader
Start thinking like a trader and not an investor. For a trader, profit is what is booked; all else is book-profits. Keep taking profits off the table at regular intervals. This will help churn the money and give better returns.
- Follow the trend
It’s important to latch on to the market momentum. Trying to sell during a bull market or buy during a falling knife is pointless. The market is always trying to tell you something and it is your job to listen.
- Learn and move on
Don’t obsess over a loss or missing out on a big profit. Don’t fall into the over analysis trap. Profits and losses are part of the game… so, learn to take it in your stride.
- Leverage with care
Ensure on always having sufficient balance before opting for leverage. This is especially applicable in a volatile market. That is where most traders get hit. In such markets, focus on cutting losses than making profits.
- Buying, Selling and Doing nothing
Traders believe that strategy means to buy or to sell in the market. But waiting on the sidelines can also be very productive; especially when the market is confusing.
- Stay away from free advice
Don’t get carried away by trading calls on WhatsApp and SMS. Quick money can be quite tempting but free stock tips are rarely worth it.
- Keep costs low.
Factor in brokerage costs (Upstox charges zero brokerage for equity and Rs. 20/order for intraday), STT, stamp duty, GST etc. when estimating profits.
- Overnight risk may not be right
When there is uncertainty on the economic/geopolitical front or there is a major event coming up, it is advisable to be as light in the market as possible.
The secret to being a successful trader is to manage risks as much as it is about taking them. Overall, just get the basics right and adopt a disciplined approach.
About the author: Amit Lalan is an MBA graduate and a CFA Charterholder who handles compliance, risk, customer and back office queries. He is the Director at UPSTOX.
