POSTED BY October 1, 2014 COMMENTS (84)ON
Today you are going to learn some valuable lessons of stock market trading from experiences of a person who traded in stock markets for 1.5 yrs and failed miserably during those 1.5 yrs. This person is no one else, but myself
Sometime in June 2007, I got recruited in Yahoo from campus placements. I was 23 yrs old, fresh into job and had no idea how my life is going to take shape at that time. Suddenly, I saw a huge inflow of money (salary) in my life and I was not very clear what to do with it.
I had some weird notions about “Getting Rich Quick” back then. I was good with numbers, knew about stock markets basics and considered myself to be “analytical”, so I thought I am smart, very disciplined internally and can “possibly” do better than “average” in stock markets (every one thinks like that only).
Now, there was one more guy in our new joiners group who was equally enthusiastic about stock market (that guy is now an IAS officer) and just like a smoker finds another smoker in a big group, we found each other and became buddies.
Over the next few weeks we made various plans on how we will get rich trading in markets. We were already millionaires on an excel sheet and we thought even in worst case scenario, we will do well.
So our next step was to open trading and demat accounts.
Things were all set, we were about to start the race.. and one day one ICICI Direct guy was in office (targeting new set of employees to open trading accounts) and we thought he was god sent ! . We opened our trading + demat accounts in no time.
The Rs.500 annual charges seemed too small to us compared to what we would be minting in coming months. When he said its “FREE” for the first year, we were like – “We won’t mind even if you charge 10X for that in the first year” .
While we were ready to start our journey in stock markets . We got to know that there is something called Options (derivatives) apart from regular stocks. This was something new for us. We googled and searched about options, and we came to know it’s a high risk/return thing. We didn’t focus too much on “high risk” part , the only thing we could read was “high return” part.
So next moment, 20-30 eBooks got downloaded on our laptops and we decided we will learn about it and make sure we don’t leave any stone unturned for make our “millionaire dream” a truth. It was a bit hard for us to delay our “trading” for few weeks 🙁
Learning about Options trading opened up to a whole new world for us. We learned that options trading is an amazing leverage tool which was very fascinating. I learned about technical analysis also and used all the office bandwidth to download technical analysis eBooks and videos (at one point of time, I had 1000+ eBooks on stock markets and I didn’t read 998.8 eBooks out of it).
For those who want to learn about options in detail, I would recommend an excellent resource on it from Deepak Shenoy of Capitalmind. He did a webinar on the topic and it was recorded and uploaded on youtube. You can see it below
So were all set with high energy, but could not take any action because our trading account was still not active that time and we were waiting for it.
So, one day I got a sms – “Your Trading account XXXXXX9484 is Activated – ICICIDirect” . I logged into my account, transferred 10,000 from my ICICI bank account to ICICIDirect account (they were interlinked already) and there was one stock we were following from long time. We bought an OPTION for that stock , I had to pay approx Rs 6,000.
I made Rs 2,500 profit , a 24% profit during LUNCHTIME and now we were planning, if we can I leave our jobs ?
I realized years later that one should never make profits in their first trade in stock markets, it fuels the overconfidence in you like anything and gives you a false sense that you are really some smart guy !
Till now I was giving you the background of what all happened before we started our options trading journey . For next 1.5 yrs, we were very much involved each day into stock markets, made some money, lost a lot more money, got frustrated, some short-lived happy moments came in too and finally one day I put a big break on my options trading.
I learned a lot of lessons in those 1.5 yrs of my journey in stock markets and realized that I can pass on some learning’s to others who are now trying to enter the markets or are fascinated with the potential stock market trading holds .
I am not saying my learning’s are some hidden secrets which are very new, but I can share what all I learned in my style , I am sure it will help someone who wants to learn from my mistakes.
These few points will help you to not make mistakes I did and help you overcome some myths and notions associated with stock market trading . Just a request – Note that these learning have come from my trading in Options (which is derivatives) and not regular stocks, but that does not change the learnings you are going to read below.
When I entered into stock markets, I was of the impression that I need to acquire a lot of knowledge on how things work, how various strategies work ? How technical analysis can help in trading ? I learnt all the technical indicators, back tested them on the past data, wrote lot of programming scripts to test my hypothesis.
I even went on to download lots of videos online and watched it over and over for many months and I realized that my knowledge had gone up significantly. I now understood lots of concepts, strategies, complex terms .
I could see a chart and instantly see lots of hidden patterns and could tell more than a normal person who does not know how to read a chart.
But then, over the months, I realized that “knowledge” is just a secondary element to trade successfully in stock markets. Almost all the good traders around the world agree that “knowledge” does not contribute more than 10-15% in being a successful trader. It’s an important thing , but certainty not the holy grail
I am not saying that one should not focus on “knowledge” part, all I am saying is that it’s not that KEY thing to succeed. Over knowledge will only create problems for you.
One of the famous stock trader Ashwani Gujral says in his book – “How to make money trading derivates” – that as per his experience over many decades, he feels that knowledge of charts etc contributes to just 10% of success for any trader. Here is the chart which explains what he mentioned in the book
So, learn things in stock market and then concentrate on the other important elements which you will learn in some time. Dont overthink about knowledge part.
What I have seen is that all the new traders somewhere want to challenge the markets and want to predict when markets will fall and when it will rise. They want to predict when the trend will reverse. They want to catch that top or bottom.
This is the essence of where most of the failed traders are stuck . If markets are rising , somewhere inside me, I wanted to catch the top and wanted to prove as if I “almost” know that now markets will fall OR if markets were going down.
However in this process, I realized that all the time I was just trying to swim against the trend, If markets were going up, I tried to predict when it will fall and how much and vice versa, and in that process I never stayed with the trend. There was some kind of fun in going against the trend. It was very tough to accept that markets can be simple (not easy)
Below you can see last 1 yr graph of NIFTY Index and see that there has been an uptrend in market and it has risen from 6000 in 2013 to around 8000 now . That’s 33% increase , but imagine someone who didn’t stay with the trend and always tried to predict when will market fall and looked at markets with suspecting manner and never got in the trend itself.
So just make sure that you never go against the flow in general. If I have to compare this trend following with some adventure sports, then I will compare it with Surfing, where you ride on the flow of the water. The flow of the water itself will take you with it, you just need to stay with it. Imagine what happens if you try to go against the water flow, the chances of you getting crushed is high.
So, try to identify the overall trend (upside , downside) and then make sure whatever is your trading style , be with the flow itself.
There is nothing wrong in having a contrarian view and predict when the markets will turn its direction, but be sure you know how you will take that decision. You can surely take a call against the trend , but make sure you accept that you were wrong in case you fail. Don’t try to prove yourself right if you are wrong, because it’s only going to harm you.
I personally think this is the most important part of being a successful trader . The biggest reason for my failure was that – I was very casual about money management and made the biggest mistakes in this area. Money Management in context of trading is all about managing your overall money and how much part of your overall trading capital you put at risk in each trade.
I will give you an example – Let’s say you have set aside Rs 10 lacs for stock market trading . Now let’s say you make 2 rules
Rule 1 : You will never use more than 20% of your capital in any given trade, no matter how promising it looks to you. Which means out of Rs 10 lacs you have , you will not put more than Rs 2 lacs on any single trade (so even in worst case, you will lose only 20% of your capital)
Rule 2 : The maximum loss you will allow on any give trade is 10% , which means that if you put Rs 2 lacs on a trade, you will not let the loss cross 10% , which is just Rs 20,000
If you see these 2 rules, you can see that the maximum loss in any single trade will not be more than Rs.20,000 which is 2% of your overall capital. So assuming you make 1 trade each month, you have 50 months of quota with you to go wrong fully
No one is so bad that they will make bad decisions every time, you make good and bad both decisions , but important point is that you should survive in markets till that time when you start taking right decisions .. Hence it’s important to be in the game and unless you take money management very seriously , you are bound to get out of the game some or the other day.
This is exactly what happened with me. By the time I started realizing that I am moving from “bad trader” to an “average trader” zone , my capital was over and I was already in loss and I never went back to the game itself.
The biggest reason why money management should be used is that it does not expose you heavily to the risk on a broader level, even if there is very high risk on individual trades.
And the next big reason why money management is crucial is that it brings some kind of consistency in your growth overtime.
Below you can see 3 versions of money management, which is BAD , Average and GOOD money management, where the overall risk taken on a single trade is moving from high to low.
I did some simulation on excel where we are measuring how capital will grow over 36 months (assuming 1 trade is done in a month) . I ran 25 tests and plotted them on a graph together. You can see how in case of bad money management the growth of capital is very random, unpredictable and varies from very high (lucky) to very low (unlucky)
But in case of good money management , the growth of capital a trader has moves up over time and with high consistency .
So to sum up , I would say money management system is like having a great stamina . If you are there for longer time in markets, in a way you win the battle to some extent.
Psychology plays a big role in being a good trader. From the childhood we are programmed to WIN and that same mindset takes over rational thinking in stock markets trading too. We want to WIN on all the trades , It’s hard to accept that you were wrong , being wrong means taking a LOSS . LOSS equals FAILURE and we are never taught properly how to take failures. And that’s exactly what happens in trading, novice traders don’t cut their losses fast, they let them grow (ego) and keep hoping that they will WIN
This is what also happened with me. When I bought an option for a stock, every time I wanted to WIN, every time I wanted to make profit on that option. I thought I will become a great trader , if I WON more and more ..
Winning MORE times is not same as making MORE money in stock markets trading. I know some of you who are reading this are confused with this statement , but let me explain this important point
So when it comes to stock market trading, you can’t choose how many times you WIN or LOOSE, but can control HOW MUCH you will win or lose !
1. You can control how fast you can get out of loosing trade (getting out of a bad decision)
2. You can control how long you will stay with a winning trade
3. And You can control when you will take the decision using your knowledge.
Every trade you make in stock market, you should make sure that your profits potential is generally much higher than the risk potential. Here is how it should look like
It’s very much possible that a trader wins 6 out of 10 times and still looses the money and in the same manner, it can happen that a trader wins just 4/10 times and still makes a lot of money.
Let me explain this with an example. Let’s say a person has Rs 10 lacs to start his trading .
A good trader wins just 4 times, but he makes sure that he will make big win and every time he makes a bad decision, he cuts the loss fast.
And in same way, a bad trader might win 6 times , but every time they are in hurry to book their profits (so they earn small every time) and when they are in loss, they do not book their losses fast (no money management rules in place) and hence let their losses grow because they can’t accept they made mistake (Ego) . The chart below will explain you this .
This is the only big difference between a good trader and bad trader .
Today I have shared my mistakes I did when I traded OPTIONS and I hope you will learn from my mistakes . But this can just be starting point only, you will only learn when you get on the ground and do the real trading. Till then it’s just a practice no matter what you do.
It’s extremely addictive to trade and if you are like me, you will feel a great thrill trading either stocks, futures or options (or any other instruments) , while I didn’t succeed in trading, I at-least know why I failed, I at least came to know my weakness and now I can improve upon it. I can at least help others to not make the same mistakes I did.
Also in future, if I get into trading again, I am sure I will be 10X better compared to earlier version of mine. I know it will still be very though, but I can try at least and when I stopped my trading, somewhere I felt bad about leaving it. I felt as if I am turning my back and got a feel of leaving the battle ground, but it was a right decision because I could have damaged my own net-worth to a big extent had I not stopped.
I would love to hear what you feel about the points I shared and if you would like to share your own experiences
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84 replies on this article “How I failed into stock trading and 4 amazing things you can learn from my experience”
Although I am little late to read your story still I went through all those ups and downs like you. Learned every penny rules, strategies, mindset to apply in option trading and before in intraday stock trading. But gradually I am getting into the loss zone only. Everytime I quit, accumulate money, enter and at last same story. Now after reading all your faults, I realize that all that matters to cut your loss and wait for profit.
But sometime one wrong trade,fear or greediness takes all the profit you made throughout the day.
Although I know how to overcome it, but some wrong decissions are bad enough to keep you away of your dreams.
Is MEDITATION the cure for all these misconduct of mine? How one best trader keeps his/her mind in control throughout the day?
Do you think if I manage my money in right way and trade only after having ample amount of capital, it will be helpful for me?
How much capital is enough to do option trading and do money management well?
“One wrong trade” is the biggest issue in such high leveraged trades
The only way is to make sure you do not deploy a big portion in single trade and be disciplined with your approach and strategy
It is really helpful for both beginner and experienced investor.
Thank you for telling your story and we learned a lot of thing from it. I wish that you will become a successful trader in future. Because you know the mistakes which are done by Normal and novice traders. Thanks
Thanks .. I dont wish to become a trader in near future atleast 🙂
Thanks a lot buddy …the post is great….
I have a question on IPO investing; tough not related directly to this article, this is the closest I can find relating to my query. By the way, there is no place in your website for asking questions unless we reply as a comment on any article; could you please provide a link for general queries not necessarily related to particular articles?
Anyway, my query is this? I invested in 2 IPOs recently – well before the last date and through ICICI Direct. The 2 IPOs are RBL and MGL. Both applications I got NIL allotment. I wrote to the registrar asking for reason – I got a standard reply stating that the allotment was on Draw of Lots basis. What does this mean? Is it simply luck of lottery who gets allotment. I would have thought allotment should be on proportionate basis or first come first served basis. I also notice in both cases, the issue was listed at very good price on opening day. Now I wonder whether there was any suspicious circumstance in this?
Thank you so much. Learning from failures is a good thing,but putting effort to teach people who u don’t even know, to not to make the same mistakes is great thing. The article helped me a lot. Thank you again.
Glad to know that Samuel ..
http://www.nsebsecharts.com has recently started showing realtime stock trends along with buy signals. This may help a little better!!
I am sure this is really a good message to people who is about to start trading like me. I really appreciate your work, hope you will rock the trading while your come back. Looking forward to hear your success in trading (doesn’t matter how extent it is).
Thanks for your comment ramreddy
Excellent article with good analysis.
Glad to know that mahipal ..
Hello,very good and informative views from all.I would like to know from all traders online about the the companies which have the lowest brokerage for intra day and delivery based trading.
You can check Zeroda or RKSV
Given below details came purely on my own experiences, hoping it may benefit many people……
Intraday trading requires proper self-discipline… (It should be your primary source of income, while secondary income is also essential).
So From my experience Golden Rule is given below
1). In this trade you don’t need to love your stocks, love their movement. Here risking amount should be low, profitability should be high.
2). Ideal amount = Rs 5 lakh (4 lakh in trading a/c +1 lakh in bank saving a/c.) this amount should be free for 3 years even not emergencies.
A. One lakh – investment holding
B. One lakh – regular holding (for shorting purpose)
C. One lakh – intra-day trading (buying first, then sale)
D. One lakh – keep idle in trading a/c – for golden opportunity (when panic situation arises)
E. One lakh – keep in saving bank a/c.
If you may divide in same ratio for capital & profit if amount is less or more than 5 lakh.
Step A,B,C,D,E should be inter-changeable according to market behavior
If profit seen, immediately book it, do not wait your target in first/last hour of trading.
You have to make yourself emotionless during trading time. Keep yourself cool/alone when panic is in market- it should be best time to you to capitalise this panic situation (it only happen if you have cash in your hand – do use only IDLE amount kept in trading A/c.).
If any share falling very fast (please make brief analysis from historical data and try to find how it recover in situation in past) then act accordingly- it is possible by minded people only.
I am not recommending to put stop loss, however if you struck badly, first earn loss amount from other shares, and then book loss.
If you buy 5000 UNITECH share @19.3 sell it 19.75. Amount is on stake Rs. 95000, possible profit = Rs. 3375……is it looking too much risky. Once book profit…….then do the same thing with 3000 units, in next time with only 1000…be continue as long as you feel uncomfortable to sit in front of your PC.
If share price is between 16-25 5000 unit @ first two attempt
If share price is between 25-40 3000 unit @ first two attempt
If share price is between 40-55 2000 unit @ first two attempt
If share price is between 56-100 1000 unit @ first two attempt
If share price is between 100-170 500 units @ first two attempt
I am sure you may earn on an average 3000 per working day. Means 60000 in a month with capital amount of Rs 5 Lac
3). While buying intra-day, do not think about no. of shares; think about how much amount you are risking.
If you buying SBI 100 SHARE it needs 2.5 lac, and
Practically earning capacity = 100*20=2000 (generally SBI gives 20-30 points movement).
If you go for UNITECH for same amount you may buy 12000 share, as UNITECH give 0.4-0.6 movement per day(average) earning capacity would be = 12000*0.4 = 4800
Now you decide which type of stock is better for you, but you should be habitual to book profit.
4). Only 3-4 hours working best time (best time to trade in given below time)
Criteria of selecting Intra-day Stocks
Please try to select beaten down (Group A) stocks with the price range of 20-40 to generate good amount of profit. Some of stocks is given below, as per my trading experience
(OPTOCIRCUIT, UNITECH, JPASSOCIATE, TV18BROADCAST, ADANIPOWER, HDIL, ALBK, RCOM, DLF, UNIONBANK,IRB, SHASUNPHARMA, SBI and many more)
Please select 15-20 stock, and keep it on display of your PC screen analyse. Do trade maximum 2-3 stock in a day (which shows movement) them according to mindset. One more important thing, trade in only those shares, which one follow the market (analyse this from historical data). Please avoid those stocks for intra-day trading which behave unnatural.
Driving a car on same road regularly is more comfortable and controllable, because driver knows all holes & doles in the road. In the same way, you should trade only in selected 2-3 stocks daily in fix period of time say 15 days or one month. After trading fix time period, you may switch on those stock that shows movement at that time. Some Key points are given below
Good bouncing history in a trading day
Selective stocks with high degree of volume
Be flexible to target- so habitual to book profit
Trade intra-day while keep in mind for intra-week (for square off purpose)
Do not try to break your own made rule
If you have trading experience less than 2 year, please avoid trade on margin money completely. However it is applied for all person who is trading, 1/5 of capital amount can be used on normal working hours. But extremely avoid margin money during panic time.
Key Points for Yourself
Friends – Intra-day trading require some essential things.
1. Mind (Controlling Power) –
Friends doing intra-day trade is like driving a car (riding bike). How fast or slow you are driving is not much important, how much control you have on your car it is the main thing. When it comes to CONTROL, it connects directly with your mind, not from any other part of body. Your hand/leg is for supporting roles only. So Mind drives the car, not your hand/leg.
Frankly I am saying here if you have mind (Good Analytical Power, how fast you can observe the things happening surrounds you), then only you are made for Intra-day Trading.
So please re-study yourself about this features (you know yourself more than others). If you think you are not fit here, just focus on investment, forget intra-day trade. (however you may consider Intra-week OR Intra-month)
Knowing everything means not confirm here, you can do everything. Doing needs regular practice. Many people know each and every part & features of a car, even also know how to drive a car, but can’t drive the car. At the same time many don’t know clearly part & features of car, but they drive car smoothly.
So person, who wants to be in intra-day trading, needs mind and skill more than others. It is extremely essential things. You know the movement of share, but can’t buy/sell timely…..waste everything here.
You should know very well that how to place order quickly (you may go virtual trading for making yourself skilful)
3. SMART & Quickness
S – Specific M – Measurable A – Attainable R – Relevant T – Time-bound
Smartly placing order timely is essential things. If any movement show opportunities to earn just do it…..waiting in such situation is not allowed
It is the thing which decides that you are going to make profit or loss. When panic situation arise, emotionless people capitalise this like opportunity, while emotional people just book the loss and saying thanks to god, I saved today (and if loss is high, don’t explain what situation they feel)
5. Pleasant Environment
Sleep Well. Please keep yourself cool, tension – free,
Make a room exclusive for trading purpose, good quality music sound.
Do not too much focus continuously on computer screen
Remove all of friends/relative from your group who know/ask/discuss only NEGATIVE words – most important things
In intra-day trading, it plays an important role to decide your trading (life). My advised to choose a brokerage house which give unlimited trading facility, at the same time, never compromised with quality features and value added services.
If you pay Rs. 100 as a brokerage, actual cost of trading would be Rs 170-300 depending on brokerage house.
Family members of brokerage –STT, Service Tax, D-mat charge, Stump Duty and many more……
Be informed brokerage amount should not cross Rs 10 per lac trade @ any cost. In better word, there should be lowest cost of trading.
Low brokerage also reduce tensions if target is not meeting, you may square off all your trade low profit/ zero profit/low loss because it is not going add some more loss / reduce profit during intra-day profit/loss booking.
When I traded at Karvy, intra-day cost was Rs 200 per lac after losing about 0 .75 lac in 6 month, I switched to Bonanza & Ventura……bonanza costing Rs 60-80, Ventura- costing Rs 18-22 . Presently by last 2 year, I am happily trading @ Ventura and making good profit.
Use of Margin Money facilitated by broker.
An Intra-day trader is like mobile shop owner who is dealer cum retailer (precisely only dealer)……here you work start…..
Many people in share market consider intra-day trade like gorilla war….these people not only use own tools but also borrow it from others (sometimes even don’t know how to use the borrowed tools). They go in war with pseudo confidence (you know why). As long as they face small kind of contenders, they win and acts like a king. But when real attack comes from all corners, they not only lost the war, but also, they have to work for own survival (for existence).
So when it comes use margin money for trading, it’s like killing yourself with own hands. You work very hard to generate tools to fight; you should know how to use the tools. So train yourself. Generate skills (But be sure, it does not come in one day, need regular practice)
Intra-day traders lose money just because of working like gorilla war. This type of person wants to just live their life. They understand themselves a king. These traders win 4-5 days in small amount , and lost all with one big attack that come around all corners….and if you fighting with someone other’s sward, and lost it, think what happen
Hey Surya Tiwari
Thanks for sharing your experience with all of us. It was a great learning.
Thanx Manish for sharing your story. It seemed like my story. Since realising that it is no gain game for me, I have been trying to detoxify my self from trading addiction and you have reinforced my resolve. I am now buying shares only in form of Monthly Equity Plan and holding on to them to satisfy this urge of trading.
Great . I think its a mid way path !
This is the story of every first time trader who enters stock market. You have captured every novice’s experience very nicely!
Only few will stick around, learn from there’s as well as others mistakes and create there own winning strategy over the period of time.
1. If you are a fn0 trader, you would not trade many; Many serious traders stick with only one e.g. NIFTY and be with it forever. Although, options look simple (min. risk but maximum gain as projected), they really require complex strategies when compared to futures. While going through the material online I came across a very nice blog (http://niftynirvana.blogspot.in/). Sharing it so that someone might find it useful.
2. Many successful traders with multiple strategies at the same but min. lots.
3. Just investing niftybees on a periodic basis could give a new comer a good introduction to stock market.
I can relate to what you are saying ! .. Thanks for sharing that link !
Thanks for sharing your experience with us all.
Though your experience covers what most of others on this forum have experienced in initial years of investing/trading; I have got a question (for the same topic) for you.
If you have:
– Liquidity (about 3 months of salary)
– Good amount of savings in FDs & PPF (in SBI)
– A primary residence (without any liability/loan associated with it)
– All insurance (Term, Health & Auto)
and you get a surplus amount about 5000 – 7000 a month to invest,
Would you still hesitate to suggest for investing in direct equity?
(Just wanted to know your opinion)
P.S. I am planning for Only short/mid term holding of stocks only. (No day trading – No Derivatives/F&O).
Thanks Manish for opening up your heart and giving us this valuable advice 🙂 ..appreciate it !
I also want to share my experience in this field..basically I am not a big investor..I have been investing since 2010.
My rolling money is very less close to 5 L…usually trade equities and IPO.
As your said there are times we will be in greed , confusion while trading .
My strategy is to invest for short term…I usually won’t retain the stocks for more months at the most 6-8 months..that too Hot stocks which are performing well at that point of time.
I am happy if I get atleast 1000 Rs profit (excluding the brokerage)..that I can pay my utility bills :)….I will calculate and compare – how much I will get if I deposit in FD for so many days and what is the return if I hold the stock for some many days…it always gives me profit of atleast 200-500 bucks more then FD value.
Hence satisfied. I always keep switching sector of stocks..that is one thing which helps me…more oriented towards IT stocks and upcoming sectors like pharma, e-commerce . Avoid evergreen stocks like NTPC, Bhel…these will have very less change in value daily….as my stategy is short term..I will put ny bet on hot stocks only.
Not sure is this is correct strategy..but small gains helps me to pay by monthly bills and I can save from my salary as well as pay my home loan EMI.
Then you might ask me that why don’t you put FD and sit idle …:)
None of the banks give me FD for 1 month deposit..savings rate is less as well.
One advantage is I can easily withdraw money if I ma in need..some or other sector in my portfolio will be performing well…
Thats great .. thanks for sharing your case with us ! .. really nice to see exactly what I think 🙂
Nice article.Same thing what i wished to convey was done by you.
Nice article & lesson. Once upon a time was heavy trader. Made good initial profits & each time double the trade value. Collected around Rs. 1 L in few months & then lost 90K in single trade within 20-30 minutes. Since then never looked at F&O & individual stocks.
Its all about guessing what millions of other people are guessing. No model on this earth can predict human behavior which is irrational. Better to buy entire market via Index funds. Takes care of everything.
Thanks for sharing that Jatin
Awesome, Its me in your words
I am a vivid reader of your blog.With regard to the above topic it seems it gives a wrong view about stock investing/trading. Investment is an Art not a Science. I am not good in number but i have invested in good stocks . In stocks of company which have grown along with me . I emphasing on company like Colgate ,ITC,Dabur,MRF , Reliance and many more . Anyway good information from your side.
Are you trading or investing ?
It seemed like I am reading my own story in your words. I have felt each and every fact mentioned in this post.
– I was not having any strategy. Just used to look at the charts and predict a turn-around or continuation which used to reverse after some time and I used to see my profits getting converted to losses and still try to hold them till them become too much.
– I was allocating very less money (sometimes Rs. 5000/- to maximum Rs. 20000/-) that too without any money management strategy.
– Many a times, I got carried away due to greed of the recent profit or got into a trap of recovering a recent loss. Both occasions caused me huge losses. A poor show of psychology here 🙂
Finally, I am into Value Investing and doing great there.
Will get back to options when I have enough of money, strategy and knowledge on how they practically work.
Thanks for sharing your experience !
I went through the exact same thing in 2012-13. I thought of investing in stocks, when one of my friend told me about options. I made all possible mistakes. But 1 fine day I decided to quit. After that the market has grown but I am afraid to trade again.
I can understand your situation Vishal
You can stop trading and never do it again .. nothing wrong in it !
I would rather delve into the calm and peaceful world of “Value Investing” instead of Trading..:-)
yea , better to get into what you are comfortable with !
Manish Wonderful peace of knowledge i felt it was exactly my own story. if you ask me i would put it as 20%-Method of Trading, 20% Money Management and 60% Psychology.
Stops are not fail safe.
Slippage(a stop loss at one price but it gets filled at a substantially different price) is very common in options and futures (esp.in Agro) . And one needs to be very very accurate in timing the whole thing ; I mean your intended move has to happen before expiry or it expires worthless.Even a day or 2’s difference won’t do.
From my personal experience if one sticks to the checklist/steps; money can be made in equity( cash market ). But in FnO it is very very( many times) difficult to make consistent profits.The whole thing can make you feel you have a control(but actually you may not). If someone to ever try FnO sticking to fewer lots is must.Or we can even lose our shirt.
When it comes to Technical Analysis ; it is easy to come back and say this move was so obvious; but doing analysis and coming to an actionable item when it is actually about to happen is not.
Many thanks for the article Manish . Good to see money mgmt getting the importance it deserves.
Thanks Shrikant 🙂 ..
Very thought provoking article. Now this is needed as the stock trading is picking up pace even in smaller towns in India.
Do with caution is the message for the new trading account openers.
Those who invested in 2009 ,I believe are first time investor in the age of 30s.
Those who said the absolute return of 400% or 600% has to calculate the return with respect to time over 5 yrs.
Please to understand , Manish write this article for the traders not for the investors.
thanks for your comment 🙂
Most of the people here are discussing the fallacies of trading in markets.. How and what were the reasons for the losses that they have encountered.. All true.. But here, I remember a line from one ebook which I read on markets from one pro trader.. “As a new trader, you have to pay your dues..” This is so very true.. Stock trading or any trading cannot go so easy.. It has to b done with proper knowledge and research.. Just ask yourself, r u ready to do any business in the world(even the same business ur next door neighbor is doing?) The answer should be an OBVIOUS NO.. This is bcoz we dont understand all businesses equally well.. As a lawyer cannot operate a person, so does a doctor cannot file legal cases..this does not mean they do not possess qualification, it simply means that it is not their job.. Same applies to stock trading as well.. Trading also requires a dedicated approach.. one should take it up professionally and not as a part time work.. The approach should be clear.. Market is ruthless, unless u r strong enough to safeguard yourself from its blow, u r bound to be injured.. And the injury here is on your financial front as only money is concerned here and money in current day is the blood for life..
So, one needs to understand the following before stepping into trading..
1. Understand the business of trading.. Clear yourself of wat return u will get for the amount of risk taken.. The beauty of market lies in the fact that, both risk and returns can be quantified beforehand.. and trust me when i say this..if these factors are quantified before hand, u will never cry whatsoever happens..
2. In the process of attaining efficiency in Point No.1, all the steps involved to measure risks and return will have to studied.. That is the goal.. (How to reach the goal involves stock/commodity/currency selection, when to reach..meaning the time we are to hold our investments…and also the backup and pathways to reach the goal if we miss something or some unfavorable condition spikes up..) If these concerns are addressed, and the investor/trader takes time to answer these questions, he is bound not to fail and even if he does fail he will not make a big mess..
There will be thousands of such comments.. But I will point to one more thing..
Statistics say that 10% people make money in markets and 90% are losers.. Now think that the 10% winners are doing something which is often missed by the remaining 90%.. They take things professionally.. Take time and think who are in the list of this 10%..
My analysis says, that Mutual Fund houses, brokerage firms, hedge funds are some names who win this battle.. And the biggest looser here is the retail trader.. this is so because, he is the one who is least educated.. With educated, I mean his education in the field of trading/investing/managing risk and lastly his market approach..
Thanks for sharing your views and experience on this topic ..
My experience is positive about stock market. Started investing in 2006. Felt extremely proud of myself when gains were almost 200% by december 2007. Felt i ll be millionaire soon, here comes great crash in January 2008. Did not know what was going on, lost all my gains in less then 6 months. Portfolio started going deep red at one stage it was 60% down. But i am earning enough to digest those losses. I never borrowed a penny to invest in market and no one should do it. My whole portfolio was probably less then 6 months savings. Realised not for me, started learning about principles of market, read good few books. Read intelligent investor 3 times in 2 months time, put double the portfolio amount to average my holdings over whole of 2009/2010 on SIP basis. slowly market started recovering. Today my gains are over 400% have booked profit partially over these years and bought house for investment from those gains. Which has tripled in value. So I have positive things to say about it. My learnings are,
Be prepared for losses. If there were only gains why would i waste my 5 days a week working for someone.
never borrow to invest in market.
Only invest amount what you are prepared to loose 100% and it wont disturb your sleep at night.
Dont just jump in have some basic knowledge. Dont need to know everything.
Change your allocation periodically and never put all your eggs in one basket. Invest profits from stock markets elsewhere in physical assets preferably or in recurring FDs.
And never underestimate power of markets…..
Thanks for sharing your experience Amit .. I am sure there is a lot to learn from it for others !
I am working in Financial Services Industry for last 16 years. I feel for making money in Stock Market, you need to stay put in stock market.
Most of the people who loose money in stock market have following things in common –
• Come with a bang in Stock Market and loose heavily
• Put large sums in Stock Markets in their initial bets itself and loose
• Curse Stock Markets after loosing Money and decide that they will never return to Stock Market
• They meet a Sales guy who takes the advantage of Greed for making Big easy money fast and limited Knowledge of Stock Market of this new enthusiastic investor
So now Comes the question, then how can one earn from Stock Market. Though there can be more than one way of making money, the most important thing according to me is that never leave stock market. Those who are able to survive for long in Stock Market automatically learn their own rules to make money from Stock. Now these are some of the ways in which one can Survive in market for long period
• Tone down your expectations on High Returns from Stock Market, just aim returns that are higher than your Bank Fixed Deposits
• To start with, either go through Mutual Fund Route or invest in Nifty 50 Stocks as per your Research
• Avoid trading in Future and Options
• Never take leaveraged positions. Leaverage means you are driving at High Speed and chances of accident are high
• To start with, Only Put that money in stock market which you won’t mind loosing
• All the above points were made to ensure Safety of Principal which is a must to ensure you never have to leave stock market
Gradually when you have spent a long time in Stock Market, you can take some exposure in Future and Options, Very limited exposure in Mid Cap and Small Caps (Based on your Risk Appetite and considering this Investment to be High Risk High Return Investment – somewhat similar to casino). Still you need to understand that Financial Management is the most Important aspect of Investment in Stock Market. Hence Safety of Capital is of paramount importance at all points oftime.
Thanks for sharing these points Anoop
They were very valuable !
I am not a newbie or veteran of markets. Investing in market for the last 12 years on and off. It is not about profits or loss, am trying to fight some addictions to get rid of.
1. I can’t stop seeing markets on daily basis. Earlier I used to refresh on hourly basis. Now I came down to 4-5 times in a day. When I consider myself as LT investor, unable to get on why am tempted to see the market status hourly or daily basis. I consider myself as mature investor when I don’t look at the markets for atleast a month.
2. My emotions are controlled by portfolio gain/loss on single day. I am happier when my portfolio gains at the end of the day and feel gloom if it ends in negative. Honestly I want to be detached.
3. I think some thing like this when am buying a stock. Should not sell this stock for next 10 years. If am lucky and the price rises by 10-15% within month or quarter, something forces me to book the profits. Lost some very good multibaggers with this attitude. Surprisingly, I don’t get this urge to sell the stock even when it is tanking.
Thanks for sharing your story Krish
I can relate to what you are going through . Even I was so much emotionally attached to seeing the profits each day 🙂 ..
I think trading is much like gambling. You maybe lucky sometimes but loss is there most of the time. If stock market is a casino for most of us then ..the system is loaded against you.
I think we should invest in good companies and buy them when sentiment is low.Hold it for a year or more..if profit threshold of 25% is reached ..sell sell and invest in liquid fund or FD till you can invest again an market always throws an opportunity from time to time.
We save on long term capital gain tax.and sleep peacefully at night. Do not look at your demat acc every day.your holdings may go down ..20%-30%. Do not panic.
Ideally invest small amount which you do not require 2-3 years..
This is working for me….till now…past is no guarantee by the way…
Thanks for sharing your views on this Atif !
psychology-45%, money management 45%, knowledge+strategy 10%- excellent analysis
lol Deepak! Hope you are just joking!
Let me tell you my positive experience about stock market,I got into market in 2008,exactly when market crashed and put all my savings into Sensex companies and then cashed out almost 4 times of what i had invested earlier. With that money, I bought a flat in Pune in 2010. The value of that Flat is almost double now. Stock market is not that bad either if you have hard cold cash in hand and you keep your eyes open for the opportunities.
I am a banker, know technical analysis and I do my part of research as well, but as said by Manish TA is not helpful in most of the cases so i prefer to buy opportunity based stocks and follow the news. For example i bought Ranbaxy in bulk when USFDA banned their production at Mohali, stock went down almost 40%,i was just purchasing because I had cash for that opportunity and had some kind of trust with the company.
There are cases when i made loss but i always prefer to average them out rather than booking loss and I do have certain principles for market and they are working well so far –
1) Whenever I make big profit, I put most of my profit into tangible investment like gold, house, Prepayment of loan, recurring FDs.(My great late father’s advice)
2) I start thinking about profit-booking as soon as I see 25% increase in the price. 100% returns are rare and I witness only during 2008 crisis and I feel lucky for that.
3) Stay in cash and park your money in FD when the markets are sky high. Like in present scenario I just can’t think of putting money in any of the stock, rather cashing out whatever I get chance. My portfolio now less than a lakh.
4) Financial news are just awesome. Read most of the financial newspaper. They are great pointer and wait for opportunity.
5) Currency trading is pretty safe and very predictable with market movement .
PS: These thoughts are very personal and I am not provoking anyone to follow this. And, I am buying Suzlon every day.
what do u mean by averaging losses?
how to do that??
n why r u buying suzlon?; stock already in downtrend….lower circuit.
Thanks for sharing that with all of us Deepak !
I follow these simple rules as ‘trader’
1. Don’t use over leverage provided by broker
2. Don’t put more than 20% of capital in single trade, you can still recover loss with 80% left but not if you are left with only 20%
3. Strict stop loss
4. Trade 2 lots, book 1 st within 50% of 1 st target
5. Don’t carry any positions
6. If you have a good day job , you don’t need to be a trader, be investor
Thanks for sharing that !
Any body who is really serious to adopt stock investment as a business, mail me. I am proudly say I am successful investor since last more then 25 years.Pl. read above two words, “Investment” not trading and “Business” not a hobby.No doubt law of probability works here.I never play cards,not buy lottery tickets and not bet even for any thing.
I m interested in Investing kindly provide your email address so that i can contact you Thanks
Pl. refer and read my earlier comment on this article under this name. As I am not IT but just internet user lay man, I could not assess comment no. Pl. do it. I learned by sharing our practical experience with group of my like minded friends. There fore I want to accelerate same with vast pool of investors. If you are satisfied what I have narrated, pl. convey your willingness thru this medium.
Email ID please…….
Many will second the views expressed in the article. Me too. This is due to the fact that for many, making a quick bulk is(and will be) initial lure until one gets experience.
I also learnt he hard way. I was in loss situations more than once. Initially luck protected me then my education helped me. I started with futures and options and in a year I lost good amount of money. Then, by chance, I pursued my MBA and started learning about fiance. After my MBA, I came to realize that the preferred customer benefits given by my bank are actually the crumbs being thrown at me for keeping about 4 lakhs of money in savings account for few years.
From then on I started taking personal finance/wealth creation seriously. In this process I realised that wealth creation is not about get rich quick but about get rich steadily. This realisation helped me identify new avenues of investment gradually after understanding the risks. This approach is helping me improve my corpus at a steady pace.
Two personal observations here.
1. One has to learn about the instruments one uses in his portfolio before investing. though this is not very difficult, needs some hard work.
2. The knowledge, if imparted to children gradually by giving them more and more financial responsibilities and make them a part of financial decision making process.
Thanks again for a thought provoking piece.
Thanks for sharing that Srinivas
It was great reading how you took up personal finance so seriously !
Great post, but lacks one key thing…. where are the tools to implement some of the pointers mentioned in the post?
Would have liked to see this: (this would be starter pack…)
1. How to manage risk per trade OR money management? – Examples would be nice
2. How to stick with the trend OR how to be a contrarian? – Examples of some stock picking techniques would be valuable
3. Try to predict the downmove!!! – And do we exactly do that??? – Again examples would be nice
Its very “easy” to write about all this without any meaningful examples or proven techniques, which is what we find all across internet. BUT providing a good set of tools with examples would help everyone in becoming educated investor….
IsItPossible…Manish was just telling what he went through and even the same thing happened to me(Software engg think we are so intelligent esp when we compare against the brokers who just keep trading without any knowledge of IT)….
Manish is NOT telling us how to be a successful trader….else he’d making money and NOT running this blog..
There is lot of hard work in earning through stock trading….
Since it took a learning curve, why not pave the way for others!!! Why not show or give tools to others!!! That way the learning curve is reduced isn’t it!
Hmmm, so you want “Tips to make money from stocks” — I get a dozen emails/sms a week for that….I dont think there is a well defined formula for that.
But this article is not about learning trading , its about learning about the mistakes 🙂 . And anyways I am not failed trader .
I am about to start investing in stocks. Same like you, I have collected many ebooks and videos. And my thinking was same like earn money by going against trends.
Thanks, you saved me 😛
I’m yet another unlucky person who has lost thousands in stock market trading. I entered the markets in late 2007 when equity markets were booming world over. Just as I started to be happy seeing my portfolio in gains, there comes a shock of 2008-09 economic crisis and the following stock market crash. I lost almost 70% of the portfolio within a few months and yet I held on to the loss making portfolio in the hope that the markets would come up and I would be compensated for my losses but in vain. I realised very late only by 2011 that it doesn’t make sense to hold on to the losses and I sold off my entire portfolio of stocks.
I realised that direct equity trading is not my cup of tea. Now I stick only with Mutual Funds and I’m happy with its performance. Though I’m very much optimistic on equity returns over long term, I’ve promised myself that I’ll never get into direct stock trading but rather go only with Mutual Funds.
I was reading it and simply one thought came in mind that everything that you had written was same from my inner voice. I never told these stories to anyone but really it happened same with me. This is the first time I am telling truth in front of everything.
I did lots of thing, created excel, created my own strategies, where i should stop, all boookish strategies …do 1st trade if you get profit don’t enter in to 2nd trade on same day. but MONEY is bad … it does not keep you relax …i was breaking my own rules …When i was loosing my 1st trade i used to enter in to the market with double lots to recover my money.but in vain …
I have a question to everyone ….then who earns the money from market …if anyone really wants to earn, what he should do ?
There are some firms who does account handling on behalf of you ? will that system work …they just follow entry price – target and SL. No mind game, nothing …will that system work for the retail traders like us ?
Lets open your minds …Help others ……
Same is the case with me. Even my wife doesn’t know that I lost 25k in options trading last year 🙂
By the way, I traded as per the broker’s recommendation who did account handling for me as well as purely by myself. I was better when I traded purely by myself to be frank. They just want you to keep trading even though you might not earn anything or even loose everything.
As per my understanding in Futures/Options trading, you need to have deep pockets, tremendously calm nature (should be able to see your position drowning by more than 50% but still have confidence in your strategy and able to hold on to it), solid strategy and very importantly great discipline.
Also, the money you use for trading should not be more than 2 to 5% of your total portfolio or any percent that you are comfortable loosing all so that you don’t get overly anxious. That means you need to have huge net worth to start with small trade-able funds.
Apart from that, you need to understand volatility too as it affects premiums drastically. There are some times in the market when you should not trade. You need to figure out those phases and should have courage to sit on the sidelines during those times.
That’s all I can recall for now.
Hope this helps everybody!!!
Thanks for sharing your case Abhijit !
Thanks for sharing that Rahul ! 🙂
Manish, Even i faced the same situation but luckily i was focussing on investing so my loss was not very high, i thought equity investment will give u good return and its the only way u can get rich..
In 2005 i invested 50k in stocks and in one yr capital was 40k and i sold out, had i still hold the stock my loss would be even higher..
Knowledge, same here i thought i will be the warren buffett of india, i read all his quotes, i watched all his utube videos, i thought now i can invest and become rich and luckily, i met one guy in linkedin Mr.Awanish chandra he is a head of equity in one of Equity broking firm, i shared my excel sheet analysis of stocks and he said to me my analysis is not even 1% of equity analysis its just initial screening, he said one cant go by data which is publiched in cnbc, rediff money data like PE, EPS, Balance sheet and P and L statement, u have to verify it personally by visiting the company that takes lot of time and money, the amount which u have and amount of money which is reqd for verifying the companys financial data is very high..
Secondly he said u will see many advisor giving advise to invest in stock, but the advisor himself will not invest because even he is not sure…
He said warren buffett and other investor who made money are very few, we focus on the few and think we can also become like them, there are millions who lost billions of rupees in equity..
Thanks for sharing your experience Gabriel 🙂