Trading Psychology

10 common trading mistakes that you must avoid in the stock market

trading mistakes

Trading mistakes are common and inevitable. As they say, a large part of “experience” is a result of learning from our mistakes. To be a successful and sustainable trader, it is not just important to analyse your performance, but also your feelings and behaviour patterns. Psychology plays a pivotal role in the long-run. Since there are no entry barriers to become a trader. (All you would need is to open a trading and demat account with a stockbroker). You don’t need any minimum qualifications to be able to trade in the markets. Everyone needs to begin somewhere but there are some common trading mistakes which you must rise above.

10 common trading mistakes that you must avoid:

1. Never be too emotional about your views – Natural emotional instincts will dictate your trading behaviour if you don’t train yourself to become numb to them. Yes, it is important to become emotionally numb so that you are not affected if your views are wrong. By switching off your emotions, you can think rationally and reason with yourself. The tendency to hold on to your views with either frustration or hope is single-handedly the worst quality to possess. Most people lose money in the markets because they cannot accept that they went wrong. In my opinion, it is more important to spend time training yourself to be un-emotional than focusing on fundamental or technical analysis.

2. Never average a losing trade by taking on leverage – The most famous quote on this is by the legendary by Paul Tudor Jones who said, “Losers average losers.” The usual behaviour pattern among new/average traders is to increase the size of the position when the market is going against them. The intent is to reduce the average entry price by assuming extra risk in the hope that the stock turns around and they can exit at break-even point. The usual outcome of such actions is that the market goes against them some more and out of panic, they exit their positions at a larger loss than they initially thought.

3. Don’t be aggressive when losing and conservative when winning – Most traders who are act on emotional instincts, will become aggressive when they are losing their capital. They will trade ambitiously to break-even as soon as possible. Often, they try to earn back lost capital in a single trade. While they are making money, they become conservative and book profits too soon. If you want to be a successful trader, you will have to do just the opposite.

4. Never try to pick the peaks and troughs – Timing the markets is an essential activity but if you become obsessive about trying to buy at the absolute bottom and sell at the absolute high, then you’re in trouble. Instead of trying to time the exact pivot point, you must play the trend or range. It just makes more sense.

5. Never go against the trend – There is a saying, “No price is too low for the bears and no price is too high for the bulls.” Traders often think that their contrarian view is right and express this by trading against the trend. It is important to understand the dynamics of demand / supply before making this mistake. If there is demand for something, it is likely to continue and it is easier to make money off that trade than trying to figure out when the trend Is going to reverse. Likewise, if there is excessive supply (sellers), then the situation is likely to persist for some time and hence it makes sense to become a seller. Fighting a trend is certainly not easy or cheap. Trading against a strong trend is very dangerous and if you’re wrong, then the losses can be sharp. Instead, it is much easier to trade along with the trend. Now this doesn’t mean that you buy only breakouts and sell when there is a correction. There are different strategies to trade a trend but it is important to be bullish in a bull market and bearish in a bear market. You cannot have the opposite view and expect to make money.

6. Don’t expect the market to be rational – John Maynard Keynes said, ”Markets can remain irrational longer than you can remain solvent.”. Another famous quote from him was “There is nothing so disastrous as a rational investment policy in an irrational world.” The takeaway from this is that as a trader, it is best to give the market the benefit of the doubt and listen to what it is saying rather than trying to impose rationality. At the end of the day, it is the actions of a large group of independent buyers and sellers that is moving the markets. Markets are an information discounting mechanism and events which are likely to happen in the future are priced into the stock well in advance. If the expectation of the future changes, then the effect on the stock price will happen immediately and not in the future.

7. Don’t enter a trade without a plan – While entering a trade, make sure that you know your stop loss, time-frame and exit point. This clarity will help you scale in and out of a trade without aimlessly looking for external confirmation from news anchors or tips providers.

8. Do not buy illiquid OTM options – Traders often fail to recognize that apart from volatility risks there are other factors which seriously influence the price of the options. Time decay, liquidity, delta etc. are factors which need to be considered before entering a trade. Illiquid options generally have higher premiums and since they don’t have liquidity, the price deteriorates very quickly.

9. Don’t overestimate a winning streak or beginner’s luck – A streak of good trades can make traders feel like they’re invincible. When this feeling sets in, these traders take riskier trades without factoring in the possibility of trades going wrong. There are innumerable examples of traders who have gone down this way. It is important to recognize a winning streak or losing streak and act in a calculative manner.

10. Don’t overtrade – It can blur your plans and execution. When you feel like you’re overtrading, it’s best to take a break and go away. It is important to observe your own behaviour and know when to take a step back. It’s important to understand that the markets are always ripe with opportunities and taking a break doesn’t deprive you of them.

At Fyers, we’re always trying to add value to our clients and the trading / investing community in general. We hope you find this post useful. If you have any queries or doubts, feel free to ask me in the comments section below.

Happy Trading!

Tejas Khoday

Tejas Khoday

Tejas is the Co-Founder & CEO at FYERS, the youngest team to get NSE’s broker license. He has a specialization in finance and has over 10 years of work experience spanning across proprietary trading, risk management, and broking. Tejas & his team started FYERS, a technology-focused brokerage as a mission to transform the trading/investment landscape in India.

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  • Avatar Benson says:

    You are bang on point Mr. Tejas

  • Avatar TAP says:

    You made some decent points there. I looked on the internet for the issue and found most individuals will go along with with your website.

  • Avatar Rahul says:

    You’ve got great insights about the Article, Thanks and keep up the good work!

  • Avatar Subhash Chandra Ghosh. says:

    I feel every trader moves like a stock every morning, going up, coming down, sideways. PV,BV, PAT, Balance sheet. Self- analysis. Among all these, this post” 10 mistakes…..” an investment on all traders by you as- Liquidity distribution!! Thanks to you.

  • Avatar Shiva Juneja says:

    This is a very useful article. Thanks for sharing this.

  • Avatar Sen Dada says:

    Hi Tejas, thanks for sharing these beautiful insights over the psychological aspects of the traders.

  • Avatar Mrinmayi Dutta says:

    To add on the fear and greed are two emotions that highly affect the traders’ psychology. Anyway, well written.

  • Avatar Jai says:

    Also, do not start trading with the assumption that your money will be doubled in just few days. If your reason to get into trading is this, then I would suggest you to not get into it, unless you know the basic concepts involved in stock market or trading.

  • Avatar Shubham says:

    Sir I want to invest in equity but my budget is not that much and I have not that much amount knowledge about future and options. What do I do?

  • Avatar Ravi_R says:

    Very well written @Tejas Khoday. Why did you stop writing such blog posts. I know you write everywhere including Twitter, Quora etc. but please write more such blogs too because it is more detailed here.

    • Tejas Khoday Tejas Khoday says:

      Well, off late I’ve been occupied with our new launch. Also, cover orders are going to be launched in a few days and new updates have been released on Fyers One. Most of my time goes in managing that.

  • Avatar Sooraj says:

    Thank you very much for highlighting those mistakes…From my own experience I came to know the fact that staying deciplined is more essential than to look for any holy grail technique..!! I recently joined Fyers family and having awsome experience with FyersOne. It has everthing that is needed to day trader. It is the best trading terminal I have seen so far..You are doing a very nice job..God bless you..!!

    • Tejas Khoday Tejas Khoday says:

      Thank you Sooraj, this was a post I wanted to write since we get many questions on what the best way to trade is. Thanks for appreciating our platforms and work overall. Happy Trading!

  • Avatar Sathvik says:

    Very nice article

  • Avatar Sanjay S says:

    Thanks Tejas. Wonderful article……never read anything so close reality. Is there one to help novice & eager trading enthusiasts?

    • Tejas Khoday Tejas Khoday says:

      Yes, we’re going to come out with something interesting in the near future. Can’t spill the beans as yet. I’ve been trying to write more posts but due to an increase in workload, haven’t been able to. I will try writing more about such topics soon. Glad you enjoyed reading it.

  • Avatar Shifali says:

    Very much needed this was. I should have someone trade on behalf of me and invest in mutual funds. I am a clienet of fyers but not getting time to trarde.

  • Avatar Surendra Kumar tiwari says:

    I want to know about your brokerej patron

  • Avatar John nakkeeran says:

    Good going i am very much happy in your fyres to trade try to give the tips so that little idea to go for trading

  • Avatar Amarjeet Singh Kukreja says:

    It’s so important to always keep the basic points like above at the back of your mind always. If you can add specific points like cut your losses quickly on loosing trade and run the profit and to chalk out complete trade plan before taking any single trade, it will help new bees.
    I will try to come back to this article as often as possible to remind myself of basic things of the market.
    Amazing article.

  • Avatar Vinod gupta says:

    Thanks for sharing your precious experience & advice.

  • Avatar Pankaj says:

    Hi Tejas,

    Your profile and your company’s profile looks very promising. I have registered for a new account and I would like to be associated with your firm. Please call me to take this further.

    My contact number is on the registration that I did today.

    Thank you,
    Pankaj Choudhary

    • Tejas Khoday Tejas Khoday says:

      Hello Pankaj, Thanks for showing interest and acknowledging our profile. Hope the team has called you & got you started already.

  • Avatar RAHUL SINGH says:

    Hi, I’m trying to open an account and I have already requested for it several times…..but I’m not getting the response from anyone.

    • Tejas Khoday Tejas Khoday says:

      Hello Rahul, that’s strange. I got a feedback from the team that you said you’ll get back if you’re interested at a later date. In any case, you shall receive a call in a few moments.

  • Avatar Shashidhar says:

    Dear Sir,
    It’s great thing that you are giving good things and pictures for traders .
    I am truly , very new chap in trading, but m Master in commerce with 15 years of supply chain experience,
    Can u suggest me how I should start trading in option call and put. I need to understand and learn regarding this. Can u send a mail for reference book or any other so that I can learn.
    Shashidhar Dixit

    • Tejas Khoday Tejas Khoday says:

      Hey Shashidhar, Apologies for the late reply. I understand that as a newcomer it can take time to get used to options. I suggest you go through our other posts. I have written several posts on options and we also have a tool for options strategies.

    • Avatar Ravi_R says:

      Trading for a Living is the best book I have read so far.

  • Avatar Jaggi but not vasudev says:

    For me the 4th and 9th point is always tough. I always try to do this and ends up market goes down more from there. In starting I used to get it right but now, my account size is bigger but am not able to.. what to do?

  • Avatar Gurpaksh Lahiri says:

    Sir I am waiting for account opening but it is taking time because of some IL&FS demat.

  • Avatar Rishika says:

    Trading can be a profitable endeavor, as long as the trading mistakes mentioned above can be avoided. While traders of all stripes are guilty of these mistakes from time to time, beginner traders should be especially wary of making them, as their capacity and capability to bounce back from a severe trading setback is likely to be much more restricted than with experienced traders.

  • Avatar Raksha says:

    Good one.. but write more i guess you don’t have much time to do this..

  • Avatar Sarthak says:

    My problem is that I become aggressive and average my trades.. Had bad experience in nifty futures in last few days. Instead of closing my short position I started averaging.. Fucking pissed off.

  • Avatar Indrish says:

    Why don’t Fyers conduct some coaching classes for traders? Or some seminars?

  • Avatar Hemanth says:

    @Dilip makes a good point. Many traders in my friends circle and whatsapp group said the same.

  • Avatar Dilip says:

    Fyers changing gear to 20 rupees. Now you will give good competition to Zerodha..! Only reason I didn’t shift was because ur price was little higher till 100 per trade. Ask your sales person to call me I have given my number already.

  • Avatar Avasthi says:

    Hi Tejas, you have done a great job by reducing brokerage just before GST getting introduced. Saw your mail and admired you. Keep on doing good things for traders sir.. we need people like you in India.

  • Avatar Sushant says:

    Nice post, Thank you for sharing above information that is really beneficial for the trader and investor in market the most important thing that affect the price is just trend and technical as well fundamental aspect of market and you risk appetite on which we focus. Equity tips

  • Avatar Arun Sharma says:

    Such an great article shared by you…… I agree that most of us do these mistakes while going for trading in stock market. All tips are very impressive and will help investors in trading when they will go for trade.

  • Avatar Aayush says:

    Informative stuff! Thanks a lot.

  • Avatar Saurabh says:

    Thanks for those tips! This helped me get a basic understanding as I’m a beginner.

  • Avatar Saurabh says:

    Hi, What does an irrational market really mean?

    • Tejas Khoday Tejas Khoday says:

      Crowd behavior in a market is likely to be irrational especially when there are big events or outcomes. You can see this in the way stock prices move.

  • Avatar Suresh says:

    Hi Tejas,
    Very good information for the beginners to the trading domain.
    Just wanted to know if there is any link to find the current position of a stock – over bought or over sold positions.
    Would appreciate if you could shed some light on this.

    • Tejas Khoday Tejas Khoday says:

      Hi Suresh, we recently introduced a new feature for F&O analysis. Click on “Acton in Futures”. You might find this very useful.

  • Avatar Rahul says:

    …..Please provide some relevant tips regarding how can I cover my loss in one month.

    • Tejas Khoday Tejas Khoday says:

      I will write a seperate post about recovering losses. but in a jist, the possiblity of doing that depends your capital, how much you lost, how much is left and of course the opportunities present.

  • Avatar Rahul says:

    Hi Tejas, I have lost 34000₹ in previous one month.I’m trading in intraday in commodity market. Your article is very useful for me and thanks for it. Please provide some

    • Tejas Khoday Tejas Khoday says:

      Hi rahul, progress is not a one way street. Losing money is part of becoming a great trader and you should make the most of it by correcting your mistakes.

    • Tejas Khoday Tejas Khoday says:

      Yes will surely write more of such blogs soon when I find some free time.

  • Avatar Dr.Ojha says:

    Very illuminating journey with you.If I can follow surely your article will be a milestone in my wealth building effot.Thanks.

  • Avatar Raj Dalvi says:

    hey it was really helpful…Bro I am planning to invest 50000rs can u please let me know in which company should I invest?

    • Tejas Khoday Tejas Khoday says:

      Raj, we don’t give any stock tips as such. However, if you want to invest, then I suggest you take a look at our unique thematic investing platform –

  • Avatar Abhinav says:

    Thanks for this wonderful article Tejas. It is very useful for entry level people in the market like me. Looking forward to get more stuff.

    • Tejas Khoday Tejas Khoday says:

      That’s great Abhinav. Will certainly write more soon. If you want me to write anything in specific, do give me your suggestions.

  • Nice article Tejas. It’s my first visit to your website and gain a lot, thanks for your efforts to write such informative article.

  • Avatar Vinay Majithia says:

    Thanks Tejas. I have read many quora answers of yours which shows your knowledge and experience about the market. As a beginner in trading, it is very useful.

  • Avatar Basavaraj shantkumar prabha says:

    Tejas Thank U Very Much. The Article is just mind blowing. During walk through the article i left that i was and am doing same mistakes. This Article i feel will help me in coming days of trading.. Keep going and keep doing such great work …

  • Avatar Sagar Patel says:

    Thanks Tejas, it was very useful for active traders in stock market

  • Avatar Ram says:

    Awesome article sir..Truly impressive. I actually developed some love on my trades which made me to loose my money…I will be much more cautious from now on. #eyeopener article

    • Tejas Khoday Tejas Khoday says:

      Thanks Ram. I’m glad you found it useful. Encouraging feedback such as yours motivates us to write more content! It’s best to think of trading as a journey & not a destination.

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