Five Important Lessons to Learn From the Market

May 4, 2022

Here are a few important lessons that can help traders and investors to survive in the markets and become profitable over a period of time.

Risk Management
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Whether you are an options trader or cash market investor, risk management is the most important concept to deal with.
You should always prescribe our risk before entering the trade. Adjust position size so that the risk does not exceeds the prescribed limit.
After entering the trade, you can either go for reward which could be double, triple or more than your risk OR you can trail your stop loss to go for larger gains, in case momentum is strong.

Nothing Works All the Time
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A trader can utilize a custom system/strategy, can take discretionary decisions or use an algorithm to take decisions. But remember that nothing is going to work all the time.
You are bound to miss moves, exit early or get shaken out before the move actually starts. You need to think about longer term perspective. The opportunities that you missed were just a few of next 100 trades that you are going to take.
But if you are missing 6 out of 10 opportunities, you need to adjust your strategy.

All Strategies are not for Everyone
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You might have seen or heard about traders who made huge money using their own strategy. But trust me, even if you get that strategy for free there are higher chances that you are going to lose.
It is not just the strategy but years of hard work by the author that made it perfect for him. He would know all the nuances and the environments where it worked well.
Also, the nature of a strategy should be directly proportional to your personality. An aggressive strategy for one trader can be too slow for the others.

Start Small
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If you are not so familiar with the stock market then you need to start with small capital. This will automatically reduce your risk and position size. Your profit will also be small but learn to make your calculations in percentage terms.
First prove yourself that you are a profitable trader for at least three months, then increase your capital gradually.

Deal with Failures
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As I said nothing works all the time. There will be losing days and losing streaks. It is very difficult to deal with losses when you are new to trading. But to begin with, minimal losses are easier to deal with. Imagine you started trading with 1lac and lost 10K on the very first day. I am sure that soon you will lose it all and then become an investor.
Following risk management and developing strategy that suits you are not overnight processes. You have to develop discipline to follow them. Try to stay in the market for longer time and it will teach you how to deal with failures.

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Regards