5 mistakes of my First Trade
Inspired by the name of 3rd novel byChetanBhagat , i thought of writing this article where i wanted to discuss some mistakes (big one) which i made during my first trade in stock markets , though i realised very late that i made so many mistakes in that trade .
Its worth discussing how i could have avoided those mistakes and others can learn from that .
MISTAKE 1
27th Nov 2007 : I got my trading account opened and i was thrilled to trade and make lots of money ... i saw a orkut community recommendation on GTC India "Buy" Recommendation and how it can reach from current price of 600 to 2000 in some some months , there were all the good reasons discussed there .It looked like a "cant-miss" trade . i bought 10 shares @560 .
Mistake : Buying only on recommendation and not analysing it well , over relying on others recommendation , buying a company which i do not understand enough .
What is the right thing : Never buy just on recommendation, Do your own study and analysis . When you buy on others recommendation , you will don't take responsibility on your own if there is any loss , which is dangerous in markets . Hear others but listen to your self . See other things like markets trend , sector view , global markets , future prospects . Once you are fully confident that its a correct trade and you feel comfortable with it ... go for it .
MISTAKE 2
After 3 days : Just after i bought the shares It went up from 560 to 800 in 3-4 days ... i thought that its moving as expected and bought 10 more shares at 800 . Within another week , it went up more to 950 , and i was flying ... i bought 10 more shares @955 again , to reach the target of 1500+ . My average buy price was now 772 .
I was feeling little bad for not buying 30 shares directly @560 in the start .
Mistake : GREED !! , This is a very common and very big mistake , so big that it will be among the top mistakes investor and traders do . Buying more quantity was not a wrong thing .. it was the intention behind it .
There is nothing wrong in increasing the position once it moves to your target, but it has to be backed up with strong reasons and study . It should be a trade with high probability of success. In my case it was not . It was just a recommendation from someone in orkut community , there was a 2 line explanation for why it will go up .
What is the right thing : There was no need to buy more shares that point in time .. i should have just sit back and watch .
Stock market is just like our life , You need to have satisfaction in your life and stock markets , If you want more and more and more , you might not get anything , in fact you can loose . You put everything you have on the trade like i did .. Because of GREED i invested more than i could afford to loose . I took unwanted and unaffordable risk , because I only saw profits and never the potential losses.
MISTAKE 3
Next 1 week : The prices were not moving now ... it was going up a bit then coming down again and was stuck in a range of 900-1000 . It went up to 990 once . For a time being there was doubt in my mind if it will not move up to 2000 and will return back to my buy price levels .
Mistake : No profit booking . There was a sharp rise in shares price from 550 to 900 in just 2-3 weeks and that is rare . it doesn't happen to every stock ... It was an excellent return , but i did not book the profits . Reason : GREED again
Read why partial profit booking is so important
What is the right thing : The better thing to do was to book profits , at least partial ... Situations changes in markets, I never checked back the news regarding the company after i bought the shares and i was never updated about it . Every time you get some good profits , its a wise idea to at leastbook some partial profits out of it (Unless you have strong reasons to hold it for long) .
MISTAKE 4
Next week : Prices now started coming down ... It came to 900 first , i was scared , and i said to myself , i will book profits once it goes back to 950+ . It never did .
Then it came back to 800 and i regreted for not booking profit at 900 , i said to myself , i will book it for sure when it comes to 850 . It never did .
Then it went up a bit again and went up to 850 , i forgot my promise and allowed GREED to take over my promise . It went down again after that and now it was neat my average buy price ... this was the time was feeling myself a big fool (i was) for not booking Great profits . And not booking it at 0% profit-loss seemed foolish .. we trade for profits .. if i had to take 0% profit .. why did i trade at all ...
Mistake : EGO !! .
Fear of loosing part of profits . then Fear of not making any profits , then fear of loosing some money . Fear Fear Fear !!
What is the right thing :
"When your boat starts sinking , you don't pray , just Jump "
Once you are doubtful , surrender to markets wish ... See what markets is showing you . Not what you wanted to see ... Markets are supreme and no one can be above markets ... Leave you Ego at your home when you go in front of Markets .. markets tell you whats going to happen , Not viceversa ...
Accept that you are wrong and made a mistake and move on .
MISTAKE 5
After that : Then the prices started falling and went to 600 (my original buy price) and now i was in loss . i was proved wrong . but i was not accepting it and just trying to prove myself right by holding it and just hoping it to come back ... it never did .
Finally it went down and down and down and i was just seeing it everyday in a hope that it returns back to a level where i can be happy to sell it ... it never did . It went up to 300 and i sold in frustration .
I saw it go down to 250 and then saw it bounce back to 500 again . I was again feeling cheated by market of not giving me right opportunity to exit .
Mistake : Impatience !! and Fear !! and not cutting my losses short .
I exited at a very bad time , i exited at almost the lowest price of that time .
There was an opportunity for me to exit at small loss . But taking a loss hurts Ego and it did . Not cutting my loss early was the result of not defining my loss early enough . I should have had thought of it earlier itself and just a trigger needed to be pulled when i reached that level of loss , without emotions ..
Fear overtook common sense ... Fear overtook logic .
What is the right thing :
I should have defined my Target and Losses before taking the trade ...I should have been realistic and logical .
I should have waited little more time , and then exit at a better price ... I should have consulted someone who is better than me (even a street dog could have given a better advice than me myself) .
Current price of GTC INDIA : Rs 55
Conclusion and Summary
My first trade was not at all planned and "no plan" is "a plan to fail" .
Fear , Greed , Emotions , Ego , Impatience : these are the elements of Failure in Stock markets ..Manage them well and you can do better . These things are still not the most important elements of success in stock markets , they are Money management and Risk management . I will write on it later sometime ..
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