Begin with the end in mind, i.e., focus on becoming an independent professional trader if you truly wish to achieve financial independence and fulfil your life goals.
The first step is to bring absolute clarity by debunking the myths that are associated with trading:
Gambling Myth: “Trading is gambling". In reality, trading is a professional activity but traders behave like gamblers. For professional traders, profits do not come by chance; rather they are the by-product of following the process with precise execution of proper strategies and risk management. An analytical understanding of the market is imperative. A monthly 5% to 10% return on capital is certainly possible.
Fortune Myths: “Only lucky and fortunate people make money in the stock market." Trading is not like winning a lottery. Luck favours those who are prepared. Trading involves a lot of studying, planning, preparation and precise execution.
Brain Myth: “Only intelligent people make money from trading." Or “I lost because I didn’t know trading secrets." There is no secret mantra for success. In fact, highly intelligent people may struggle in markets if they focus on being right in every investment/trade. The focus should be to do the right things with a disciplined approach, even if that means taking an exit with a loss.
Undercapitalization Myth: “If I had more capital, I could have stayed in the market a little longer and won". Or “One needs a bigger account to be successful".
The fact is, if one can lose 1 lakh in six months, they may lose 2 lakhs in 3 months. The reason behind big losses in trading is no regard for risk management and gambling tendencies. Hence to begin in this profession, start with smaller capital, say 10% of your investable amount. This amount can be as low as Rs. 5000. Focus on percentage-based returns on capital rather than making big money in a short time.
Remember, Money doesn’t make professional traders. I have even seen some businessmen losing crores of rupees in markets in a very short duration because of a lack of knowledge, wisdom and discipline in following risk management.
Auto-pilot Myth: If I had a good trading system or an App, I would be successful. I find many people asking me which App is best for trading. No trading App, software or automated trading system can render consistent results over a long period of time. If they really did, no one would sell it to you.
Would you fly in an aeroplane without a pilot? Although aeroplanes fly in auto-pilot mode, human intervention is always needed to handle tough situations. So be the pilot of your trading journey. Use trading systems only as guiding tools.
Myth of Fundamentals: “Stock price is determined by companies’ fundamentals and past performance". The stock price is the consensus between the buyer and the seller and hence is the result of forces of demand and supply. Stock price is never constant or, at times, much lower or higher than the intrinsic value of the company. Companies’ fundamentals do not change every day; however, their stock prices do! One must understand that prices usually factor the fundamentals much before they materialise. Hence as a beginner, one must understand the real driving forces (demand and supply) and study the markets accordingly.
Myth of Brand: “Buy xyz company shares, it always makes you money".
Beginners who follow a brand while investing may experience bitter taste when companies’ stock price starts falling rapidly, leaving them clueless as to why it is falling. Stock price has nothing to do with the brand value of the company. The current price is the reflection of future performance.
Trading Strategy Myth: “Give me a setup for success". I come across many people who are in search of a holy grail (trading strategy or setup) which can give guaranteed profit. They are invariably found watching free videos on various social media platforms. They all fail to understand that there’s no holy grail. Setups and strategies can only improve your chances of winning. They can’t guarantee success. It’s a game of psychology, and one needs to develop a proper psyche to handle the uncertainty and the randomness of the outcome. The only holy grail is discipline in risk management.
Time-pass Myth: “I will do trading as I have a lot of free time". Many indulge in trading to pass time as it gives excitement and thrill. This is a serious profession like any other profession, and one must do it sincerely. Consider every rupee as your soldier before deploying it. Would you ever send your army on a suicide mission merely for thrill and excitement? No! For entertainment, there are video games!
Fulltime Myth: “I need to do trading full-time to become successful". I hear people saying, “Today I have taken leave to trade" or “I lost because I was busy in a meeting and couldn’t watch the market". Trading is not a full-time activity. If one cannot do this successfully while doing job or any other business, they would not be successful even after leaving the job or business. The success mantra is to study more-trade less and stop watching the market tick-by-tick once you are in a trade.
One must find time for study and preparation and let the market work. Usually, people have a belief that in order to make money, they need to work hard. Trading profession however is an exception. It’s like curd formation, where one need not keep watching how the curd bacteria are forming it. In fact, if you disturb that process, you may spoil it. So stay away from the trading screen and find other things to do; like reading a book, visiting near and dear ones, learning music, etc.!
Trading is a game of belief and patience. It’s the most lucrative activity as it provides numerous opportunities for making money along with freedom of time and location. However, it requires the appropriate skillset and mindset. Be mentally prepared to devote 1000 active days to become a Pro. Once you become a Pro, Money will Flow. And to become a Pro, there’s no substitute for developing wisdom-based skills through proper training.
(Author- Avadhut Sathe - Financial Trader, Trainer & Mentor, Founder of Avadhut Sathe Trading Academy)
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Stock market trading for beginners | Mint - Mint
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